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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.

 

 

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Thu, 07/14/2011 - 10:13 | 1455824 Michael Victory
Michael Victory's picture

busy.

and when the system expieriences a disruption.. chaos.

v

Thu, 07/14/2011 - 10:29 | 1455896 ThoughtCriminal
ThoughtCriminal's picture

wait 'till an EMP hits this thing

Thu, 07/14/2011 - 10:51 | 1455989 Michael Victory
Michael Victory's picture

TCrim,

you read my mind.

Thu, 07/14/2011 - 11:05 | 1456056 ThoughtCriminal
ThoughtCriminal's picture

yep, poof! "all your market exchanges are belong to us"

why i think this is a national security issue, not just a criminal one

Thu, 07/14/2011 - 14:09 | 1456883 hbjork1
hbjork1's picture

TD,

Thanks for the very intersting post.  And to whoever did the work.  "Ye shall know the truth and the truth shall set you free."

Gold and silver we have but we can't eat it.  Hopefully, one of these days, someone will be offering a farmland ETF.  

Thu, 07/14/2011 - 10:13 | 1455825 fbrothers
fbrothers's picture

Fixed and rigged, that is how Wall Street works. Better odds in Vegas.

Thu, 07/14/2011 - 10:15 | 1455834 SheepDog-One
SheepDog-One's picture

Really just upgraded 'Space Invaders' video game.

Thu, 07/14/2011 - 20:47 | 1458096 StychoKiller
StychoKiller's picture

Yeah, I was wondering if you still get 1000 bonus points for destroying the saucer as it flies across the top of the screen. :>D

Thu, 07/14/2011 - 10:25 | 1455868 chumbawamba
chumbawamba's picture

Tron is better.

I am Chumbawamba.

Thu, 07/14/2011 - 13:55 | 1456827 hbjork1
hbjork1's picture

Where is this "Tron" anyway.  Is it in Mexico or one of the Disney parks?

Thu, 07/14/2011 - 10:21 | 1455871 Sandy15
Sandy15's picture

When the guy at the NY Fed gets carpal tunnel from pushing button on bid prices, all hell will break lose.  Market will lose 2000 plus points in a week or so.

Thu, 07/14/2011 - 10:24 | 1455880 gguillory75
gguillory75's picture

Seriously, what conclusions are we supposed to draw from the pretty videos?  This is of no value to me whatsoever.

Thu, 07/14/2011 - 10:26 | 1455886 ThoughtCriminal
ThoughtCriminal's picture

use your (criminal) imagination; sky is the limit

Thu, 07/14/2011 - 10:34 | 1455912 Tyler Durden
Tyler Durden's picture

Did you read the first sentence, or were you just looking for the value to you?

Thu, 07/14/2011 - 11:33 | 1456187 Fukushima Sam
Fukushima Sam's picture

Your legendary run-on sentences can leave some with glazed eyes by the end and often require re-reading.

Thu, 07/14/2011 - 12:18 | 1456400 More_sellers_th...
More_sellers_than_buyers's picture

So in summary... The last sale of an equity has absolutly no relation to the underlying company. What a future..sigh

Thu, 07/14/2011 - 12:26 | 1456433 illyia
illyia's picture

Might mention Denninger's coverage for those boys and girls too tough to figure it out for themselves.

http://market-ticker.org/akcs-www?post=189999

Hint: Use the YT link and slow it way down in full-size HD.

Thu, 07/14/2011 - 10:36 | 1455921 divide_by_zero
divide_by_zero's picture

Keep your eye on the triangle size coming into the various exchanges. Not many bigguns(NBBO) compared to the activity going on was my takeaway.

Thu, 07/14/2011 - 15:05 | 1457152 Rynak
Rynak's picture

Information takes time to travel distances. Similarily, sending requests from one exchange to all other exchanges, takes time. What happens, when the processing speed of the individual exchanges is hundreds of times faster, than the time it takes to get the best available price from other exchanges?

Phrased in more simple terms: What happens, when stuff changes so quickly, that you lose track of the state of things?

Another analogy: Remember those HFT algo's being able to trade and react much faster than you as a human can react? That they can totally change the market in a fraction of the time it takes you do even realize the change? That is what also is going on here with the exchanges: Individual exchanges change much faster, than they can update their knowledge about each other.... desynchronization.

Thu, 07/14/2011 - 10:24 | 1455881 MonkeySmoke
MonkeySmoke's picture

Can you say "criminals", I knew you could.

Thu, 07/14/2011 - 10:25 | 1455883 ThoughtCriminal
ThoughtCriminal's picture

Nice work, but how comes the visual of the network is in pentagram (Baphomet) forms

(don't forget: with the right kind of money, anything can be made legal)

 

Thu, 07/14/2011 - 10:40 | 1455946 Blotsky
Blotsky's picture

Funny, after a couple of seconds, I noticed that also. Who really runs things.

Thu, 07/14/2011 - 10:47 | 1455975 ThoughtCriminal
ThoughtCriminal's picture

"it's the Devil's work, i tell ya!"

Thu, 07/14/2011 - 11:12 | 1456088 ThoughtCriminal
ThoughtCriminal's picture

yeah, where's the WmBonzai7 guy? hey will i am bonzai 7; can you overlay(underlay) a Baphomet graphic on this diagram... people gotta understand who's runnin' this show:

"pleased to meet you, hope you guessed my name, huu, huu ...but what's troublin' you is the nature of my game, ..."

Thu, 07/14/2011 - 10:25 | 1455884 Hard1
Hard1's picture

Very colorful, but I can't see the bigger triangle!

firework
Come on, let your colors burst
Make 'em go "Oh, Oh, Oh"
You're gonna leave 'em falling down-own-own

Thu, 07/14/2011 - 10:26 | 1455887 Mec-sick-o
Mec-sick-o's picture

People just trying to outsmart the system... as if it went unnoticed, until they break the toy.

I'm wondering why is it so pervasive lately? 

Thu, 07/14/2011 - 10:28 | 1455892 ThoughtCriminal
ThoughtCriminal's picture

wasn't this a game in a 1980's video arcade?

Thu, 07/14/2011 - 11:28 | 1456162 earnulf
earnulf's picture

I think it was, can't remember the name, but you had to mine these asteroids to make bombs to take the big head thing out.    If you didn't have enough and couldn't run away, it ate you.

Oh yeah, Sinistar!!

Thu, 07/14/2011 - 10:34 | 1455913 anony
anony's picture

Buy BMY @ 29.  Sell the 29 calls in nearest 'back' month, collect dividend, and go do something else. Bump up or down accordingly, each quarter.

Money for doing very little.

Far better than Vegas, albeit no bodacious ta-tas to smack you in the eye.

 

 

Thu, 07/14/2011 - 10:36 | 1455920 jimijon
jimijon's picture

Cycles, waves, points .... compression, resonance, phase shift

12.21.2012

Thu, 07/14/2011 - 10:43 | 1455962 crzyhun
crzyhun's picture

Tyler

Is there or could you slow this down for my slower brain than computer as I think this is valuable?

Thu, 07/14/2011 - 10:46 | 1455970 Ricky Bobby
Ricky Bobby's picture

I see a Stainless Steel Triangle, the three points are; Wall Street, DC, Media. It is such a shiny prison fence that when the peasants look outside they can not see it.

Thu, 07/14/2011 - 10:49 | 1455987 pappacass
pappacass's picture

Yeah, I've just developed epilepsy

Thu, 07/14/2011 - 11:50 | 1456273 Contura
Contura's picture

Thanks, those videos opened my eyes regarding hft......but what i really want to do is closing them again.

Thu, 07/14/2011 - 12:04 | 1456337 Caveman93
Caveman93's picture

Not even able to compete against "Big Blue"! The market is long dead with no humans involved. Very eye opening!

Thu, 07/14/2011 - 12:07 | 1456349 Eagle1
Eagle1's picture

These videos clearly demonstrate that the market today is nothing more than a bunch of overpaid yuppies playing video games with each other and the loosers are the poor slobs that think they are investing.

Thu, 07/14/2011 - 12:13 | 1456380 the grateful un...
the grateful unemployed's picture

of course the OTC is the worst. but mostly its an efficient system. buying is the easy part, after that they can do what they want with you.

Thu, 07/14/2011 - 22:03 | 1458255 Lady Heather...UNCLE
Lady Heather...UNCLE's picture

Waddell and Reed control ALL that??

Thu, 07/14/2011 - 22:48 | 1458322 Mediocritas
Mediocritas's picture

Whoever made this video (nanex?): excellent job. Trying to explain the system in words to people is damn near impossible if they're not traders, but a video really does the job. Is there a higher res version available? I can't make out the text defining which exchange is which.

Now, just paint in some parasites living in the middle between all the exchanges with their cutting edge network connectivity, monitoring quote activity at each exchange and looking for network latency (lag) between venues to provide front-running opportunities. Even if there weren't latency issues, parasites can still profit from discrepancies between venues that arise as a consequence of the half-second rule applied to quote dissemination.

And hell, if there isn't enough lag in the system to be profitable, just stuff the order queues with spam and make it.

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