It's Official: HFT Breaks Speed-of-Light Barrier, Sets Trading Speed World Record

Tyler Durden's picture

Submitted by Nanex

HFT Breaks Speed-of-Light Barrier, Sets Trading Speed World Record

Adds a new unit of time measurement to the lexicon: fantaseconds.

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 time 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. It's not like adding accurate timestamps is rocket science, or even considered 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 both the total of all output lines and specifically multicast line #6 which carries YHOO, were both 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 we 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.

The first chart is a 250 ms interval chart of the NBBO in YHOO which is plotted as vertical lines and colored red if the NBBO was crossed during the interval, yellow if it was locked, and gray if it was normal. The implied quote rate is shown as a histogram at the bottom -- and scaled in quotes/second. We will focus on the time shown in the black circle.

Zoomed in detail of above chart in 2 millisecond intervals.

The next chart is the same as the one above, but includes trade executions which are plotted as dots or squares and are sized according to trade size. Each reporting exchange uses a unique color and shape. An exchange code table appears at the end of this page. What is unusual about this chart is that trades are reported ahead of quotes. The dots/squares should trail after the quotes. Up to the point in time that is labeled "A", and after the point labeled "B", trades and quotes were in sync. Between these two points is where the quote timestamps began falling behind.

By plotting quotes and trades from just one of the active exchanges, we can easily measure how far in time the trade messages came before the quotes and therefore estimate the minimum amount of time the quotes were delayed. Below is a 1 millisecond interval chart of YHOO showing only Nasdaq trades (black circles) and the Nasdaq bid-ask spread (gray vertical bars).


Exchange Code Legend:

1 NQEX Nasdaq Exchange
4 AMEX American Stock Exchange
7 PACF NYSE ARCA
8 CINC National Stock Exchange
9 PHIL Philidelphia Stock Exchange
11 BOST Boston Stock/Options Exchange
57 NQNX NSX Trade Reporting Facility
59 NTRF NYSE Trade Reporting Facility
60 BATS BATS Trading
63 BATY BATS Y Exchange
64 EDGE Direct Edge A
65 EDGX Direct Edge X

 


The chart below shows quote message rates for UQDF and multicast line #6 which is the line that carries YHOO quotes. The time of the event is shown at the lower left. Although traffic from YHOO was a significant percentage of all traffic on UQDF, it was still not high enough to indicate any problems. Note that the surge on the right side of the chart is much higher, and there weren't any known problems at that time in YHOO.

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FunkyMonkeyBoy's picture

liquidity biatches!

No crime to see here.

markmotive's picture

Faster than time itself? Did I read that right?

The average man is f@$!ed

Falcon15's picture

You read that right. Prepapre the market for LUDICROUS SPEED!

They've gone to PLAID!

http://www.youtube.com/watch?v=mk7VWcuVOf0

fuu's picture

We are going to need to drag out our copies of "Time Traveler's Handbook of 1001 Tense Formations "

http://pages.cs.wisc.edu/~param/quotes/guide.html

Manthong's picture

So.. who really runs Dodge when the law is shoot first, ask questions later?

Johnny Yuma's picture

"Prepapre the market for LUDICROUS SPEED!" My brains are going into my feet! 

NotApplicable's picture

Front-running has entered a whole new dimension.

Question is, are either side of these transactions even real, or is an HFTbot trying to generate the appearance of a real market? At this point, they could be trying to replace the casino with a mere facade.

If Cramer starts getting his calls right, then it's time to get suspicious.

Nascent_Variable's picture

Ye cannae change the laws of physics!

newworldorder's picture

Karnac the maginificent has risen from the grave and is predicting answers to questions not asked.

gojam's picture

Business @ the Speed of Thought - Bill Gates.

Comment @ the Speed of Ignorance - gojam

 

New_Meat's picture

"Ye cannae change the laws of physics!"

It's just scientific consensus.

- Ned

Fanatic's picture

Laws of physics are just "tradition". :-P

Cathartes Aura's picture

scientific consensus.

couldn't give you a + vote "up there" New_Meat, so have one here! 

and to the consensus, I'll add "paid for" since most science is funded. . . outcome decided, ayups!

The4thStooge's picture

It's the Large Hadron Collider. They can bend the laws of time and space to place trades in the future by observing the wave function BEFORE it collapses...

bankruptcylawyer's picture

whats' a matter colonel sanders, chicken?

 

Bruce Flea's picture

Now. You're looking at now, sir. Everything that happens now, is happening now.

Translational Lift's picture

The vacuum tubes are not only reading the headlines but now predicting them............

scatterbrains's picture

so let me see if I got this right.. by the time my limit order goes through the HFT bots have traded, gone to lunch, came back traded some more, the closing bell rang and they all left the building and I never got filled ?

 

Dr. Richard Head's picture

And you too can retire through a well-diversified 401(k) equity investment strategy.  Just shift your pre-tax DOHllars into the account, your employer will match your contributions, and you too will live in the lap of luxury during your golden years.  Buy and hold.  It's so easy a computer can do it.  HAHAHAHAHAHAAAA

slewie the pi-rat's picture

that's the same thing that happened to me!
then i changed the limit, and it got filled...
...fast, too!

now that the SEC has gotten into studying these hi-freek algoz, anything can happen

once tyler, via art_C, went into the future generations wanting to stay unborn, the SEC simply HAD to try to protect their future midgets!

Chaffinch's picture

Yep. And you might even get stopped out at a price that hasn't happened yet, and when it does happen it will be gone so fast that you cannot do anything about it.

Debt-Penitent's picture

There seems to be a crack in the porcelin of what the MSM has been touting.

Obviously, the bids are being interupted, somewhere along the line allowing the HFTs to be faster than the time stamps are allocated.

Question:  How many coincidences does it take to manifest a conspiracy?

johnQpublic's picture

looks to me like the webbot project is spot on

seeing the future...not just for clairvoyent humans anymore

tip e. canoe's picture

i see you also got the new HPH report hot off the presses and read through to the conclusion.   was just thinking the same thing.   uncanny, huh?    what's really odd is that it was scheduled to be released tonight and he released it last night instead.   or maybe it was tonight last night and today is yesterday tomorrow?

CosmicBuddha's picture

They must have employed tachyon pulses rather than light pulses to communicate the information, either that or they are swindling fraudsters.

 

http://en.wikipedia.org/wiki/Tachyon

DeadFred's picture

At the nanosecond and shorter level time starts behaving as a probability function so these bots may actually be able to react with future bids and offers but I'm at a loss to see how the the time stamp can be applied without collapsing the wave. Consequently I'm going with the 'swindling fraudsters' option.

Nascent_Variable's picture

Perhaps if we fire an inverse tachyon pulse into the HFT servers, we may be able to prevent the imminent crash.

madgstrader's picture

does that mean they can sell the stock a few fanta seconds before they buy it? wow, neat trick

Don Birnam's picture

Jim Kirk invested with one of these HFT shops with less than adequate results. Algorithmic error precipitated a backwardation of trade execution. Stale trades -- going back to the late 17th Century, and the London 'Change, as it were. 

The SEC is still investigating, but progress is slow, due to the inability to depose the Cromwellian stockjobbbers in question.

http://cdn.argenteam.net/images/series/star-trek/s3/e23/323-big.jpg

Ponzi Unit's picture

Hey Don, nice avatar -- Lost Weekend!

Azannoth's picture

We're deep into quantum physics here, it is very possible for mass less object to break the speed of light, electrons in the 'vacuum tubes' are mass less (according to modern physics) so  trading faster than the speed of light is theoretically possible

jdelano's picture

It's like when Butch found Marty's sports almanac....

jdelano's picture

damn.  and it won't let me edit for some reason.

New_Meat's picture

locked after u get a reply.  otoh, if you had one of them magical time thingiez, u could go back and get it the way u want it now.

SteveNYC's picture

Busted computerized zombie market custodian of your IRA/401k, bitchezzzz!

SMG's picture

THIS IS OBVIOUS MARKET CHEATING!  HOW CAN THIS NOT BE A CRIME?

Cathartes Aura's picture

it is a crime, but who will prosecute?  act accordingly.

StychoKiller's picture

Bailed out in March-2010 -- golden parachute!  Saved by silkworms!

RemiG2010's picture

The new level of self destruction has been reached.

viahj's picture

Morpheus : Welcome.....to the desert of the real...We have only bits

and pieces of information, but what we know for certain is

that some point in the early twenty-first century all of

mankind was united in celebration. We marvelled at our own

magnificence.... as we gave birth...to A.I.