New Way High-Speed Traders Get Edge on Investors

A new report from a market research and data firm suggests that high frequency traders are pushing the limits of the ticker tape to the tune of one million orders per second or more.

While the buy and sell orders are typically cancelled microseconds later—so-called quote stuffing—the practice is an attempt to slow down the prices seen by regular investors on their financial systems or websites, and profit off the nearly real-time prices the high-frequency firms receive from direct feeds set up through exchange-server farms, the report and other market experts suggest.

Nanex, which was founded by Eric Hunsader, analyzed trading traffic before and after the capacity of the consolidated quote system (CQS) was increased. The CQS is the industry-supported electronic system by which quotes from the U.S. stock exchanges are disseminated.

On July 5th, the capacity for this system was increased by 33 percent to one million quotes per second and, by no coincidence, the trading activity rate reached that limit that very day, Hunsader’s firm said in the report.

“If three years ago someone told us that equity quote traffic rates for NYSE, AMEX and ARCA issues would exceed one million/second (not even counting Nasdaq stocks), we would have thought the market would have entered the greatest bull or bear market ever known,” the report states. “Instead, you can’t even recognize from a one-minute chart where these bursts of out-of-control quote traffic rates occur. And when they do occur, a significant percentage of those quotes will have already expired before they even leave the exchange network.”

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