25 million quotes in under 20 seconds

"... the algorithms we see at work here are different. They don't serve any function in the market. University of Pennsylvania finance professor, Michael Kearns, a specialist in algorithmic trading, called the patterns "curious," and noted that it wasn't immediately apparent what such order placement strategies might do.

Donovan thinks that the odd algorithms are just a way of introducing noise into the works. Other firms have to deal with that noise, but the originating entity can easily filter it out because they know what they did. Perhaps that gives them an advantage of some milliseconds. In the highly competitive and fast HFT world, where even one's physical proximity to a stock exchange matters, market players could be looking for any advantage.

"They are moving the high-frequency services as close to the exchanges as possible because even the speed of light matters," in such a competitive market, said Stanford finance professor Peter Hansen.

Given Nanex's data, let's say that these algorithms are being run each and every day, just about every minute. Are they really a big deal? Donovan said that quote stuffing or market spoofing played a role in the Flash Crash, but that event appears to have had so many causes and failures that it's nearly impossible to apportion blame. (It is worth noting that European markets are largely protected from a similar event by volatility interruption auctions.)

But already since the May event, Nanex's monitoring turned up another potentially disastrous situation. On July 16 in a quiet hour before the market opened, suddenly they saw a huge spike in bandwidth. When they looked at the data, they found that 84,000 quotes for each of 300 stocks had been made in under 20 seconds.

"This all happened pre-market when volume is low, but if this kind of burst had come in at a time when we were getting hit hardest, I guarantee it would have caused delays in the [central quotation system]," Donovan said. That, in turn, could have become one of those dominoes that always seem to present themselves whenever there is a catastrophic failure of a complex system.

There are ways to prevent quote stuffing, of course, and at least one of the members of the Commodity Futures Trading Commission's Technology Advisory Committee thinks it should be outlawed..."

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