by Karl Denninger
The snicker factor of a bunch of hedge fund and other Wall Street folks screaming about GameStop (GME) and others is astoundingly funny.
Let’s start with the law: It is illegal to “manipulate” a stock or other security — that is, it is unlawful to express an intent to sell or buy for any other reason than to actually sell or buy, and it is also illegal to intentionally mislead others about your reasons for doing so.
This is why “spoofing” (although almost-never prosecuted) is against the law. “Spoofing” is the practice of laying in a bid or offer you have no intention of being filled on for the express reason of making other people think you want to sell or buy something, when in fact you want to do the opposite. They attempt to follow your claimed “expression of intent” only to find your offer or bid has disappeared, the price moves and they come in on the other side. It sounds like picking up pennies in front of a steamroller and it is, but it can be very profitable especially if your connection to the exchange is fast enough that the risk of getting filled is extremely low in that you can cancel your order before anyone can hit it.