I don’t think you understand what spoofing is.
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They aren't frnt-running retail in the sense of capturing trades, but I'm sure they use PFOF to price options.
In that they use it to update the spot price? Yes, absolutely - *after* they have filled the order.
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I used to work at a big HFT, there was an insane amount of internal compliance around making sure information from client flow was not being misused. We went much further than the law required. They are terrified of being audited.
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I don't think there's anything particularly wrong with using order flow to price future option sales.
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Rather, using trends in increasing order flow from retail to price future options properly, helping determine IV in order to still make money and not blow up during a gamma squeeze.
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You mean increasing iv when there is a lot of one/sided flow? I’m sure they do that (never worked on options MM myself so cannot be sure). As long as the info is ply incorporated *after* the orders are filled this is totally fine (both legally and morally).
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