[JoeAltmaier]

Confused: you describe the practice as both 'spoofing, and illegal" and "means exactly nothing". Which is it? How do you tell the difference from innocent cancellation and malfeasance? Maybe that's what the Op was getting at.

[kasey_junk]

Spoofing laws hinge on "intent". Like literally the exact same behaviors have a different legal status based on "why" you did it.

The way spoofing rules are usually proven is via examinations of patterns (like do you only do the cancel trick when it directly moves markets into your real position) or via old fashioned examination of documents (did you send an email that said "Let's spoof this market like crazy").

[functional_test]

I did not. I described canceling orders as no big deal. Spoofing is illegal and very much a big deal. Spoofing implies canceling but canceling does not imply spoofing.

In the example I gave, the spoofer's intent is to encourage people to cross the spread into their resting order to avoid paying the spread themselves.

On the other hand, say someone has been resting an order for a long time, for example to buy at 9 because they think that's a good price. Until the bid is at that price, they are unlikely to get executed so they'll keep the order regardless of their position. But maybe they have a large long position on when the bid reaches 9, so they decide to cancel their order to prudently manage their risk by not buying more. This is obviously important in a healthy market -- firms that fail to manage their risk run the risk of cascading failures (if their clearing firm can't cover their losses.

It's pretty easy to tell one from the other most of the time, especially for regulators with access to account tagged data.