[kasey_junk]

Layering or spoofing in this sense is putting in many orders (or less commonly a few very large) orders at different "layers" of the order book with the intention to cancel them before they can trade. The purpose is to increase the perceived supply/demand and manipulate other market makers.

The problem is that the term quote stuffing is used to describe both this and the practice of spamming orders into an exchange (which I don't think happens much) for nefarious purposes.

What you are describing I've heard as layering and or stacking orders and is not illegal assuming your intent is to have those orders trade.

As always, definitions are important.

[bd_at_rivenhill]

What you are describing is manipulation of what I've seen called "book" or "depth" micro price; the sort of thing that got Trillium in trouble (http://www.reuters.com/article/2010/09/13/financial-trillium...). I would expect everyone to take bid/ask + depth data with a large grain of salt if there are no accompanying trades, and use it only in a defensive fashion.

As for quote stuffing, this sort of thing was happening by accident in the early to mid 2000s due to the failure of some exchanges to upgrade their hardware infrastructure to handle legitimate volume. In this sort of environment, it would be easy to get away with spamming/DOS'ing the exchange to put competitors behind, but I doubt that this lack of investment still persists. Might still be possible in less-developed markets though.