On Monday, in “High Frequency Trading: Why Now And What Happens Next” we predicted that “the high freaks are about to become the most convenient, and “misunderstood” scapegoat, for when the market finally does crash. Which means that those HFT-associated terms which very few recognize now, especially those on either side of the pro/anti-HFT debate who have very strong opinions but zero factual grasp of the matter, such as the following…
- Frontrunning: needs no explanation
- Subpennying: providing a “better” bid or offer in a fraction of penny to force the underlying order to move up or down.
- Quote Stuffing: the HFT trader sends huge numbers of orders and cancels
- Layering: multiple, large orders are placed passively with the goal of “pushing†the book away
- Order Book Fade: lightning-fast reactions to news and order book pressure lead to disappearing liquidity
- Momentum ignition: an HFT trader detects a large order targeting a percentage of volume, and front-runs it.
… will become part of the daily jargon as the anti-HFT wave sweeps through the land.”
Of course, another name for “layering” is “spoofing” which is precisely the term that the SEC used today when it announced that it charged the owner of a New Jersey-based trading firm and several other defendants “in a scheme to manipulate the market through an illegal practice known as “spoofing.“
From Reuters:
The Securities and Exchange Commission said that Joseph Dondero, a co-owner of Visionary Trading LLC, as well as several other owners and a New York-based brokerage firm called Lightspeed Trading LLC will collectively pay $3 million to settle the charges.
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Spoofing involves a trader placing orders without the intention of having them executed, a strategy that tricks people into buying or selling stock at artificial prices.
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Reuters reported earlier this week that the FBI is also investigating the practice of spoofing more broadly in a probe into high-speed trading.
