Collusive spoofing represents an attempt by two or more traders to deceive the market into thinking that an instrument has more interest, liquidity, or depth. Multiple traders will play different roles in generating and profiting from spoofing the market. For example, one trader will work together with another trader by submitting large orders on one side for the purpose of having the other trader execute smaller orders on the opposite side. Once the intended orders are filled, the larger orders are canceled.
TT Score detects a variety of collective spoofing patterns, including:
TT Score computes a cluster score based on how similar the activity in the cluster matches trading activity that has drawn regulatory attention in other situations.
Higher scores indicate the trading activity within a cluster is more likely to risk regulatory concern. A company's risk monitors can use these scores to prioritize resources for investing which users' trading activity poses the most regulatory risk.
For the collusive spoofing pattern, each cluster is assigned a risk score on a sliding scale between 0-100. This score represents the probability that spoofing occurred during the duration of the cluster's trading activity.
Based on TT Score best practices, clusters that score over 75 are deemed to be “high risk” and should be the primary focus of users during their compliance reviews.
The metrics for the Collusive Spoofing model combine the total activity of all traders. The ladder data aggregates volume from all the traders in the cluster.
The Scorecard Metrics section measures the following statistics related to collusive spoofing:
Use the Cluster Scorecard to identify the specific trading activity that triggered the collusive spoofing score. The pressure chart in the scorecard shows the company level or aggregate trading activity for the trader IDs identified in the cluster.
Click a trader ID in right side of the chart to display that individual trader's activity in relation to the aggregate trading activity for the "Company" shown in the top chart.
The chart contains visual clues about the collusive spoofing pattern. For example, the following chart shows a potential simple spoofing pattern involving two traders.
In this example:
The chart shows activity based on order volume over time, but does not show the order prices and liquidity for all traders involved in the suspect trading activity. Looking at the prices for the potential spoofing orders can help you determine whether the trader was placing those orders far off the market in an attempt to deceive traders. From the Cluster Scorecard, you can click Market Replay to show how the orders interacted with the market at the various price levels.
In this example, you can see when the one of the traders began submitting a large Sell side order to create the illusion of sell-side pressure, and then you can see the smaller bid orders getting filled on the opposite side of the market. As you continue replaying the market activity, you can observe the state of the market and the trader's activity at every point in time.
The replay shows the following:
The chart on the Cluster Scorecard may also show "imbalanced fill" and "market flip" indicators to help easily identify when the potential spoofing occurred.
The imbalanced fill indicator is a green diamond above a fill that indicates where the trader had an imbalance between the bid and offer and was filled on orders on the small side of the imbalance.
The market flip indicator shows where a trader quickly flipped from offering to bidding (or vice versa) at the same price. The triangle indicator is either red (flipped short) or blue (flipped long).