Joseph Saluzzi (jsaluzzi-at-ThemisTrading.com) and Sal L. Arnuk (sarnuk-at-ThemisTrading.com) are co-heads of the equity trading desk at Themis Trading LLC (www.themistrading.com), an independent, no conflict agency brokerage firm specializing in trading listed and OTC equities for institutions. Prior to founding Themis, Sal and Joe worked for more than 10 years at Instinet Corporation, pioneers in the field of electronic trading, and at Morgan Stanley.
Courtesy of our colleagues at Nanex:
HFT Breaks Speed-of-Light Barrier, Sets Trading Speed World Record.
Adds a new unit of time measurement to the lexicon: fantaseconds.
Back to Main Research Page
On September 15, 2011, beginning at 12:48:54.600, there was a time warp in the trading of Yahoo! (YHOO) stock. HFT has reached speeds faster than the speed of light itself. Up to 190 milliseconds into the future, or 0.19 fantaseconds is the record so far. It all happened in just over one second of trading, the evidence buried under an avalanche of about 19,000 quotations and 3,000 individual trade executions. The facts of the matter are indisputable. Based on official exchange timestamps, there is unmistakable proof that YHOO trades were executed on quotes that didn’t exist until 190 milliseconds later!
Millions of traders depend on the accuracy of exchange timestamps — especially after bad timestamps were found to be a key factor in the disastrous market crash known as the flash crash of May 2010. We are confident the exchange timestamp problem has been completely addressed by now: the SEC would have made sure of it. Adding accurate timestamps is not exactly rocket science; it’s not even considered to be a difficult problem. Based on recent marketing materials, the exchanges are practically experts on measuring time. And with hundreds of millions in annual data feed subscriptions paid by the same subscribers expecting quotes with accurate timestamps, there is no shortage of funds to make it happen.
So we can be certain the exchange timestamps were accurate, which means that HFT has truly entered the era of the fantasecond.
But let us suppose for a moment that in reality, quotes became queued (delayed) and were timestamped after leaving this queue. After detailed analysis of the UQDF data feed (see chart below) that transmits this information to traders, we find that the traffic rate for all output lines and specifically multicast line #6 which carries YHOO, were well below peak rates. So it doesn’t appear there were any capacity problems which have always been an excellent indication of feed delay.
This raises a few thorny questions.
Does this mean there are far more delays than previously thought? Is there a delay every time we see an explosion of quotes in one stock? Because that sort of thing happens. All the time.
Regulation NMS is pretty clear that direct exchange feeds are prohibited from having a speed advantage over the UQDF data feed. UQDF computes the NBBO after all. So how does one ensure trade-through price protection if the price being protected hasn’t even occurred yet? The NBBO lies at the heart of Regulation NMS (Reg. NMS) and is the key concept that assures investors are getting the best price when buying or selling stocks.
Maybe it would be better to just fantasize about fantaseconds after all.