Nanex ~ 02-Nov-2012 ~ DoS Algo's Effect on Trades

While working on identifying and cataloguing the high quote traffic generated by Denial Of Service algo from 01-Nov-2012, we here at Nanex stumbled upon something interesting. Below is an image that shows the trades per second and quotes per second in Bank Of America (BAC) from 9:30-13:45 ET. Each data point represents any second that contained 1000 quotes or more per second in BAC.

The blue represents the number of quotes in a second, the orange represents the number of trades for that same second. When you graph them together using multiple axis, a distinct pattern emerges. For those seconds that contain abnormally high quote traffic, the number of trades drops dramatically.

And conversely, the seconds that contained a higher amount of trades appear when the quote traffic is less.

There might be a few reasons for this:

1. Other HFT algos were smart enough to pick up on this behavior and pulled out during that time period.
2. The various computational and network systems in place that route, analyze and do computations on this data can do nothing but handle raw quote traffic, so not as many trades can be processed during that time.

Below are similar graphs for the other securities that were affected:

• Ford Motor Company (F)
• Intel Corporation (INTC)
• KeyCorp (KEY)
• Morgan Stanley (MS)
• Sirius XM Radio Inc (SIRI)
• Yahoo (YHOO)

Note The data below was taken where the security had 100 or more quotes per second.

1. F - 333 seconds had 1,000 quotes or more. 40 of those seconds had 10,000 or more quotes per second.

Here is the entire day in Ford showing every second that had 100 or more quotes per second.

2. INTC - 242 seconds had 1,000 quotes or more. 61 of those seconds had 10,000 or more quotes per second.

Here is the entire day in Intel showing every second that had 100 or more quotes per second.

3. KEY - 386 seconds had 1,000 quotes or more. 347 of those seconds had 10,000 or more quotes per second.

Here is the entire day in KeyCorp showing every second that had 100 or more quotes per second.

4. MS - 140 seconds had 1,000 quotes or more. 89 of those seconds had 10,000 or more quotes per second.

Here is the entire day in Morgan Stanley showing every second that had 100 or more quotes per second.

5. SIRI - 110 seconds had 1,000 quotes or more. 62 of those seconds had 10,000 or more quotes per second.

Here is the entire day in Sirius XM Radio showing every second that had 100 or more quotes per second.

6. YHOO - 157 seconds had 1,000 quotes or more. 51 of those seconds had 10,000 or more quotes per second.

Here is the entire day in Yahoo showing every second that had 100 or more quotes per second.

The official word on the street is that this abnormally high traffic had a "modest impact", I think the data speaks otherwise. During those seconds where there were abnormally high amounts of quote traffic (10,000+ quotes/sec), the number of trades that were occurring simultaneously dropped significantly. In total there were 651 seconds (almost 11 minutes) of market time today that were affected. That's 11 min of potential future economic growth. These seemingly small increments of time eventually add up and serve to slowly erode the confidence of investors small and large.