Nanex Research

Nanex ~ 31-Dec-2012 ~ Record Activity, Lowest Liquidity

Our eMini Depth of Book indicator has proven to be an excellent early warning signal for extreme intraday volatility. It is based on the number of orders resting in the nearest 10 levels of depth for the active Electronic S&P 500 Futures Contract (symbol ES), also referred to as the "eMini".

On December 31, 2012, the depth of book sunk to its lowest levels since January 2010. Not coincidentally, we also saw a record high number of quotes on CQS - the consolidated quote feed for NYSE, NY-ARCA and NY-AMEX equities. This is because a few hundred emini contracts bought or sold immediately, will clear out many levels of the order book, causing an explosion of quotes and trades as the entire market adjusts to the new price level.

Note that the $VIX index also sunk, nearing 52-week lows on the same date.

See also: HFT is Killing the EMini and High Frequency Quote Spam.

1. CQS Peak 1-ms Message Rate. Chart shows peak quote rate for every minute of the trading day (9:30 - 16:00 ET) since 03-Jan-2011. Older days colored towards the violet end of the spectrum, recent days colored towards the red end. Note how often the red line hits record territory. Also note that peaks were lower during the frenzy when Obama spoke on the fiscal cliff (13:46 ET).

2. SPY 1-minute OHLC bar chart. Chart shows where peaks in message traffic occurred.

3. eMini Depth of Book. Chart shows the total number of contracts for all 10 bid and 10 ask depth of book levels averaged over each minute of the day between January 2010 (dark purple) and December 31, 2012 (bright red). Older days colored towards the violet end of the spectrum, while more recent days colored towards the red end. December 31, 2012 is the thick red line at the very bottom.

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