Nanex - Strange Days June 7'th, 2011

Strange Days June 7'th, 2011 - Stub Quoting still occurs in broad daylight.

On June 7'th, 2011, in AT&T's stock (symbol T), a quoting algorithm originating from the EDGE exchange blasted over 10,000 quotes during a 6 second period which moved the ask price from $30.50 to $130.48 and then without warning, it dropped right back to the $30 range. It must have been beneficial to someone, because they repeated the procedure again; only this time taking the price to just over $100. This second move rules out our first thought that the person responsible for this wild quoting was another victim of the fat-finger epidemic that is apparently sweeping through the trading industry.

This was not hard to find. Dozens of examples of this behaviour can be found every day.

Question for the SEC: According to this, we should not find stub quoting behaviour occurring after December 2010. Here's our condensed understanding of the new stub quote rules:

For securities subject to the circuit breaker pilot program approved this past summer, market makers must enter quotes that are not more than 8% away from the NBBO.
For the periods near the opening and closing where the circuit breakers are not applicable, that is before 9:45 a.m. and after 3:35 p.m., market makers in these securities must enter quotes no further than 20% away from the NBBO.
For exchange-listed equities that are not included in the circuit breaker pilot program, market makers must enter quotes that are no more than 30% away from the NBBO.
In each of these cases, a market maker's quote will be allowed to "drift" an additional 1.5% away from the NBBO before a new quote within the applicable band must be entered.

So in the case of AT&T, let's see which rules should apply:

According to this site, all members of the Russell 1000 are in the circuit breaker program. This site tells us AT&T is in the Russell 1000.

However, this particular example occurred near the open, when circuit breakers are not applicable. In this case, quotes must be no further away than 20% away from the NBBO. 20% above the prevailing best ask price of $30.50 is $36.60, so we should not see ask prices above $36.60.

The ask price of $130.48 was just 328% over the NBBO. The ask price of $100 -- a mere 228% over the NBBO.

In the following chart, trades and quotes are plotted sequentially as they occur. As such, no data is lost. Exchange's bid and ask prices are colored according to the legend on the left. When quotes are the NBBO, a red circle is drawn for the Best Ask, and a Green circle for the Best Bid.

T - AT&T

Quote Prices:

As there were over 10,000 EDGE quotes in the first sequence (first run up), and over 17,000 EDGE quotes in the second sequence (second run up), we will only show a snippet of the time and sales prints. EDGE ask prices have been shaded in light orange and the Best Ask has been shaded in light blue.

Quotes #121 through #131, the ask price begins to rise:

;ts|q|Index|Symbol|Listed Exg|Reporting Exg|Date|Exg Time|Bid|Ask|Bid Size|Ask Size|Quote Condition|Best Bid|Best Ask|

Quotes #10,047 through #10,055, the ask price continues to rise and is now over $130.00:

;ts|q|Index|Symbol|Listed Exg|Reporting Exg|Date|Exg Time|Bid|Ask|Bid Size|Ask Size|Quote Condition|Best Bid|Best Ask|

Inquiries: pr@nanex.net

Publication Date: 06/08/2011
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