Correct me if I'm wrong, but I thought this was a tactic employed by HFTs? Don't they regular place market orders and immediately cancel them to manipulate the market and slow down other HFTs? How is this illegal?
The Chris Stucchio article opens with a cute take on the South Park underpants gnomes list ("2. ???") and suggests that nobody has outlined why this strategy would be profitable ... which is weird because this is exactly what Nanex did:
"What is the benefit of a feed delay? For one, latency arbitrage is enhanced, especially if the delay is predictable, which it would be for someone running a Quote Stuffing trading strategy. The type of firm that would benefit the most from latency arbitrage would be an internalizer - someone that matched retail stock trades based on the slower SIP, but could buy and sell the same stocks on the faster direct feed, a strategy that became visible during the Nasdaq Blackout. By the way, Citadel's bread and butter is internalizing (matching) retail stock trades"
This is extremely easy to understand. Reading on there are a number of xkcd-style graphs that basically say "testing is hard!" but still don't really provide a solid rebuttal. I stopped reading at that point, I'm afraid :(
I'm far from an expert on this, and my opinion really doesn't matter - but I'm far more persuaded by the Nanex explanation.
HFTs do the first two, but not the third, and it's the third which is the definition of spoofing.
By the same token there are probably a bunch of other traders doing the same thing who are smart enough to keep mum.
Source: I got run over a couple times in the Treasury market.
So, it's all about initial intent, which is extremely difficult to prove. And that's why most traders who are well known to spoof markets haven't been prosecuted (see 3Red's Igor Oystacher), because they are smart enough to hide their intentions.
Sarao, on the other hand, wrote emails where he stated exactly what he was doing. For example, in the indictment, they have emails where he wrote that wants an order type that will never get filled, and if it looks like he is close to getting filled, to immediately cancel. Without those emails, he would've been able to at least make up some defense. When he has stated in writing that he is placing orders that he does not want to get filled, well, that's a very prosecution.