[mmodahl]

Because it is not a simple or fair solution to the problem; it is a sophomoric attempt at solving a human problem that simultaneously guts the actual mechanics of exchanges.

You want to make market-making unprofitable and to turn the stock market into your town's real estate market. How easy is it to sell a house? What is an accurate price for your house? At this moment? To the dollar?

[kweinber]

Protecting market making is excuse-making since registered market makers are already exempt from "over-messaging" rules like this. Plus It would be possible to enter time-expiring orders to accommodate market making without allowing unbounded spoofing. The expiries are extra info you could use to disregard price flashers who have no intention of actually transacting. (filtering out ms expiries for example). Time-unbounded orders should cost something to cancel. (heck... Give institutions 3x the cancels as actual orders for free... It would still help).

Real Estate isnt comparable. There are no market makers in real estate because the product isnt standardized and you can't make an equivalence market in one-off products... Houses aren't securities and the illusions propagated by securitizing the loans around them clearly has wild historical market risk attached.

"it is a sophomoric attempt at solving a human problem that simultaneously guts the actual mechanics of exchanges."

Markets are human constructs...the pure mechanics of exhanges aren't more important than the humans they serve. Fixing the human problems should be the priority, right?

[kasey_junk]

Again, you are confusing the different uses of spoofing. People that are spoofing put orders in and then leave them for a long time. The way they use those orders is that they pull them all at once.

There are lots of legitimate reasons for behavior that looks just like this. The problem is not one of technology, it is purely the intention that causes the problem.

[kweinber]

No confusion at all kasey_junk, I think those cancels should cost something in all those spoofing cases you mentioned (except for registered market makers who are usually exempted from messaging rules like this in exchange for real rules).

Those canceled orders had to be listed, the bid-ask system had to transmit them, matching engines had to consider them, cancel machinery had to back them out, and price discovery is affected. Why shouldn't one pay for the costs incurred?

[kasey_junk]

Cancels either are explicitly built into the fees or are captured currently as fill ratios. Spoofers (and everyone else) are happy to pay this. It won't prevent spoofing which was your original position.

[kweinber]

I've had to do the math to calc this stuff... what you are saying is simply false. If I execute a single order with a full fill, and you execute the same fully filled order with 99 canceled order behind behind it, show me how the execution costs are "built in" to reflect the difference.

[kasey_junk]

They are built into the same way extra buttons you get with dress shirts are built in. Not everybody needs them, theoretically the people who don't use them are subsidizing the people that do, but no one cares. It is cheaper to deal with missing buttons as the norm than to build custom supply chains to optimize for correct distribution. If I called up the shirt manufacture and demanded 10K buttons on the other hand, they'd probably make me pay.

Finally, none of this has anything to do with spoofing, because spoofing doesn't need high cancel rates. If anything, making cancels more expensive will encourage the behavior, because it will make traditional market making more expensive (either explicitly or implicitly by requiring membership in a cartel to be a market maker). Meanwhile, the spoofers trade is much higher margin and can absorb the new extra cost more readily.