Nanex Research

Nanex ~ 15-Feb-2013 ~ Non-Firm Quotes

The industry has a term for quotes that flicker, or disappear so fast that you can't executed against them: these are called Non-Firm Quotes. And they aren't eligible to set the NBBO. Which would be a big problem for HFT, because then order routers wouldn't get tangled up and fooled into believing they were real. It would also give exchanges a strong incentive to stop this manipulation, because the $500 million dollar exchange fee pie depends on how often each exchange is quoting at the NBBO (Non-firm quotes aren't eligible to set the NBBO). Quotes that aren't firm need to be marked non-firm.

Of course the regulator could always apply Reg NMS evenly, and this tomfoolery would stop. Immediately.

Here are 12 charts exposing a pile of non-firm quotes, in two widely known, large cap stocks, CBS and J.M. Smuckers (Smuckers has been covered before).

1. CBS showing trades color coded by exchange and NBBO (gray shading).

2. Zooming in..

3. Same as above, but showing bids and asks. Plenty of quotes.

4. Zooming in further.

5. Same as above, showing bids and asks. But most (intentionally) disappear before orders can execute .

6. Zooming down to 1 second of time.

7. Same as above, showing bids and asks. There are at least 7 orders for every trade execution. Something is not right here.

Now for charts of Smuckers.

8. SJM showing trades color coded by exchange and NBBO (gray shading).

9. Zooming in..

10. Zooming in further, down to 1 second of time. Pretty unbelievable price action.

11. Same as chart above but showing bids and asks. There are at least 10 orders for every trade execution. Something is not right here either.

12. Showing the next second. It's hard to believe the price action. It's harder to believe this is acceptable.

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