| IV. Recommendations
In our original flash crash report, we made 3 simple and straightforward recommendations. We've clarified and reduced them down
to 2 (a rule banning quote stuffing is not required because the minimum quote
life rule would effectively stop this practice):
- Replace the existing time stamp in consolidated quotation feeds
with one generated immediately before that data becomes available to any
system.
- Add a minimum quote life rule, whereby a quote must remain active
until executed, improved, or a specific amount of time (50ms) elapses.
A minimum quote life rule has far less
chance for unintended consequences, because as early as 5 years ago, it was
essentially in force due to the limits of technology at that time. This chart shows a conservative estimate of the amount
of quotes that would have been eliminated if the minimum quote life rule was
50ms. We believe the reduction in quote traffic from this rule would have prevented quote delays, making access to this data more fair to everyone.
Alternative Recommendations
Alternative 1:
Require exchanges to route orders based on data from the
Security Information Processor or SIP (e.g. CQS/CTS, UQDF/UTDF). This would
level the playing field and provide a much better audit trail for determining
if a trade received the best possible prices. Currently, each exchange
essentially must recreate their own internal SIP in order to determine whether
to route an order. The data from this internal SIP is not available (as far as
we can tell) from any exchange. We created a
video of an application we wrote
that illustrates exchange routing and the separate internal SIP.
Alternative 2:
Ban exchanges from providing direct feeds that contain core quote
and trade information. Current regulations (Reg NMS, rule 603(a)) prohibits
direct exchange feeds from transmitting this core data to a vendor any sooner than it
transmits the data to a Network processor (e.g. CQS).
Finally, we think a solution exists without new rules and
regulations: if only the SEC would enforce, or at the very least provide
guidance to,
existing rules and regulations.
|
