Detecting and Triaging Spoofing using Temporal Convolutional Networks

ArXiv ID: 2403.13429 “View on arXiv”

Authors: Unknown

Abstract

As algorithmic trading and electronic markets continue to transform the landscape of financial markets, detecting and deterring rogue agents to maintain a fair and efficient marketplace is crucial. The explosion of large datasets and the continually changing tricks of the trade make it difficult to adapt to new market conditions and detect bad actors. To that end, we propose a framework that can be adapted easily to various problems in the space of detecting market manipulation. Our approach entails initially employing a labelling algorithm which we use to create a training set to learn a weakly supervised model to identify potentially suspicious sequences of order book states. The main goal here is to learn a representation of the order book that can be used to easily compare future events. Subsequently, we posit the incorporation of expert assessment to scrutinize specific flagged order book states. In the event of an expert’s unavailability, recourse is taken to the application of a more complex algorithm on the identified suspicious order book states. We then conduct a similarity search between any new representation of the order book against the expert labelled representations to rank the results of the weak learner. We show some preliminary results that are promising to explore further in this direction

Keywords: Market Manipulation, Order Book Analysis, Weak Supervision, Algorithmic Trading, Anomaly Detection, Equities

Complexity vs Empirical Score

• Math Complexity: 6.5/10
• Empirical Rigor: 4.0/10
• Quadrant: Lab Rats
• Why: The paper employs advanced machine learning techniques like Temporal Convolutional Networks with dilations and specific activation functions (swish), showing substantial math complexity. However, the empirical section presents only preliminary results with small datasets and no live backtesting or robust statistical validation, placing it in the Lab Rats quadrant.

  flowchart TD
    A["Research Goal: Detect and triage<br>market manipulation in order books"] --> B["Data: Historical order book sequences"]
    B --> C["Method: Weakly Supervised<br>Temporal Convolutional Network"]
    C --> D{"Model Output<br>Identifies suspicious sequences"}
    D --> E{"Expert Assessment Available?"}
    E -- Yes --> F["Incorporate Expert Labels<br>Refine Model"]
    E -- No --> G["Apply Complex Algorithm<br>Filter & Rank Alerts"]
    F --> H["Outcomes: Framework for<br>Adaptive Market Surveillance"]
    G --> H