Visualizing Market Topology: Video Of Real-Time Exchange Routing

Tyler Durden's picture

Shortly we will present our take on Nanex' most recent observations on the broken equity markets, the gist of which is that the key premise behind Reg NMS: the NBBO (National Best Bid and Offer) principle which requires brokers to execute customer trades at the best available ask price when buying securities, and the best available bid price when selling securities, is now flagrantly ignored and is being abused. This is due to the encroachment of HFT which makes enforcement of NBBO regulations virtually impossible. This finding should be enough to discredit the whole premise of fair and efficient markets. And while we will discuss this more in depth shortly, below we wanted to present a stunning visualization of what really happens each and every second in our massively fragmented markets.

Video 1: visualizing exchange routing.

In the video above, orders come in from outside the circle represented by triangles. The color of the triangle matches the reporting exchange it came from. Each box on the outer edge is a different reporting exchange. The bigger triangle represent quotes at the National Best Bid Offer, NBBO. An order comes into an exchange, is processed internally and then sent out to all other exchanges and CQS.

A real-life version of the generic video above can be seen below.

Video 2: Visualization of Exchange Routing of GE during Flash Crash on May 6th, 2010:

And now you know the actual topology of what happens each time you place an order to buy or sell.