Actually it was the SEC rules I had some exposure to but this was a few years ago and was communicated to us via the compliance dept. What I recall is that because of the difficulty in proving intent, the rules allow very broad interpretation on the part of the SEC. The bar for proving spoofing seemed very low as, for example, the SEC does NOT have to demonstrate that you made a profit from it.
> But if the BBO isn’t really moving
That might looks suspicious sure, but there may be other factors (not reflected in the book) influencing a change of desire on my part. For example, what if I only want to buy one of GOOG or APPL and optimistically stick in a low-ball bid on each. If one gets filled, I cancel the other. I never intended for BOTH orders to be filled; is this spoofing? Or half-spoofing? This isn't a real strategy but there are lots of strategies which can look like this.
I agree the state of the order book drives a lot of the behavior of a strategy (but other factors like current position are also critical) but I've never come across a strategy that responds to volume changes far from the BBO. Not to say they don't exist - it's a secretive industry after all - but the changes at or very near the BBO clearly reflect real intent and are weighted accordingly. Quantity change far away from the action is mostly noise.
> But if the BBO isn’t really moving
That might looks suspicious sure, but there may be other factors (not reflected in the book) influencing a change of desire on my part. For example, what if I only want to buy one of GOOG or APPL and optimistically stick in a low-ball bid on each. If one gets filled, I cancel the other. I never intended for BOTH orders to be filled; is this spoofing? Or half-spoofing? This isn't a real strategy but there are lots of strategies which can look like this.
I agree the state of the order book drives a lot of the behavior of a strategy (but other factors like current position are also critical) but I've never come across a strategy that responds to volume changes far from the BBO. Not to say they don't exist - it's a secretive industry after all - but the changes at or very near the BBO clearly reflect real intent and are weighted accordingly. Quantity change far away from the action is mostly noise.