The Out-of-Control Explosion Of Equity Quote Rates Or Why Any And All HFT "Research" Is Already Obsolete

Tyler Durden's picture


The Out-of-Control Explosion Of Equity Quote Rates

Market dynamics have changed considerably; obsoleting many research papers in the process

Lately, readers have sent us links to a few research papers extolling the virtues of HFT, namely, that they provide liquidity, reduce spreads, and probably cure cancer. At first, it appeared that some of these papers were written based on data from another planet, but, upon closer inspection, we realized that they were simply based on very old data. You see, as HFT races towards zero, the data it generates decays just as fast. In other words, any research paper written just 6 months ago, or one that does not take into account recent data, might as well have been written for people on another planet, because it won't accurately describe what is going on in the market today.

Take a look at the images below, which show just how much, and how quickly trading has change since 2007. We plot U.S. equity quote and trade data for each minute of the trading day, from the beginning of 2007 through August 16, 2011 (about 1165 trading days).

Note the significant changes from late 2009 (light green to aqua-marine). That was a year that many Pro-HFT research papers are based on. If the research paper predates 2011, or worse, ignores recent data, it's probably not worth the paper it's printed on.

Peak 1 Second Equity Quote Rates for each minute from 2007 through Aug 16, 2011  (click any chart for hi-resolution)

Note how the spikes at 10am, which were driven by significant news events in years past, pale in comparison to normal trading today.

Quotes Per Trade Ratio

The Peak occurred on August 16, 2011 (see red spikes in the middle of the chart), when the market threw a tantrum on the shocking news of a possible financial transaction tax. We are serious.

Count of Stocks with very high quote rates

More stocks are falling victim to unrestrained algorithms.

The Sum of (TradeSize * TradePrice) / NumberOfQuotes.

The value of a quote is rapidly vanishing.

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Captain Benny's picture

Looks like a pretty stinking clear trend to me!  Each year, there is a clear step up (or down) on average.  Cheers to Nanex once again!

Shapiro might be all over this, if she wasn't so worried about giving oral to a corn dog like other idiots in government that we all know.

Pictures without porn is probably too difficult for the SEC, so I'll help them out: The x-axis is the time of day in EST.

JW n FL's picture

James Workman on Aug 17, 10:04 PM said:

Please no truth.. the quality of the readership here needs one line catch phrases that have tesedt well in multiple major markets before it can be accepted as truth! LULZ!!

Read more:

JW n FL's picture

James Workman on Aug 17, 10:07 PM said:

Anyone with the BackBone that would like to go book for book.. step up, other than that.. this is all traffic for losers.

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JW n FL's picture

James Workman on Aug 17, 10:14 PM said:

The substance of this site is? Tyler (in any one of his different personas) is imperfect? and this site has NOT! EVER! seen this much traffic.. riding ZeroHedge's Traffic Coat Tails.

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marsdefIAnCe's picture



how much money was getting offshored from CIA drug cartels in 30s?


there's a reason places like the middle east blew up first.  that's a big dumping ground for the $3-400 billion in CIA drug profits that provides a big part of the differential in domestic and international dollar based inflation


history, bitchez

marsdefIAnCe's picture



now, how can you not see that the low bond yields are an artifical construct that fly in the face foreign countries and even joe blow domestic buyers drying up?  t-bill yields are almost soley a function of what the fed's want them to be - not a relevant market signal except with respect to the fact that all the monies going towards their purchase are freshly printed -->hyperinflation, doubley so with a depression because all those fresh bills are buying fewer goods

Michael's picture

The colors in the charts are pretty.

Something like this?

Let me see if I get this strait;

Al-Qaeda is a concoction of the CIA.

Did I get that right?

JW n FL's picture

maybe not the CIA.. maybe the NSA? or other 3 letter Government Organization of Controled Demo!

Sudden Debt's picture

yeah, it made me see the same kind of colors when I was a student :)


DormRoom's picture

gold is a false signal.  it is in a bubble. zero hedge est  plus wrong.


remind yourself of the 5 stages of a bubble:


deflation, bitches.


Central Bankster's picture

Get short and post a screenshot numbnuts.

DormRoom's picture

gold has room to run, I will buy far out of the money big cap gold producer put options when gold crosses 2300-2600/oz.  The gold bubble hasn't peaked yet.

Central Bankster's picture

exactly.  Calling the top is a fools game.  Wait for the momo break.

spiral_eyes's picture

anyone who says gold is in a bubble is a complete fool, and should get short and post screenshots, to weed out trolls.

i recognise america is going through something like japan, but guess what — gold has gone up in japan too. that's because gold's rebirth is part of a long term trend. the driving factors are global money printing, global debt monetisation, the BRIC central banks (especially china), the failure of monetary policy, and the fact that the corporate game likes to rape pillage and burn shareholders, the rise of china and arabia, the rebirth of russia, and most importantly the death of the dollar as the global reserve currency.

deflationists need to get their facts straight: 

rosiescenario's picture

......or gold is running on an inverse relationship to Obumma's popularity...if you think his popularity is about to reverse field, you would want get short gold....

nmewn's picture

I got lost somewhere around gold is in a bubble and his deflationary fiat price golds "fiat price" in every country is going up.

Now if he meant fiat is a worm that eats itself, always, thus being deflationary to itself, well, all righty then ;-)

indygo55's picture

Hey DR, That is a GREAT graph. Thank you.



snakeboat's picture

Who of your friends actually holds a physical piece of gold?  Any at all?  I've got many friends and acquaintances and I'm the only one who has any metal in possession.  Anecdotal, I know, but there's no bubble till your shoeshine boy is tellin you about his stash...

DaBernank's picture

Or the metaphorical "shoeshine boy" will only accept gold as payment.

DaBernank's picture

Point taken, perhaps we haven't seen the bear trap yet. Or the bear trap was 1982-2002. I'm sure you know exactly where we are on that curve. Check back in when Newmont and Barrick have been nationalized.

MayIMommaDogFace2theBananaPatch's picture

...and apparently he wants his goddamned answers RIGHT FUCKIN' NOW!!!

Hmmm -- Tyler and Dr. Doom, toe-to-toe in the basement at Lou's Tavern.  Yeah, I'd be forced to dust off the TV and pay-per-view that one.

chump666's picture

He is Dr Wimpy now,  Dr Doom...jeez.

sitenine's picture


Thanks - hadn't been over there in a while.  I had no idea Weisenthal had become so hated, even by his own readers.  What a waste of what I once thought was real tallent.  Interesting read too.  Looks like Tyler and Roubini were talking past each other, as both are right.  Yes, there is deflation in depression, and yes, money printing causes inflation.  Regardless, I just wanted to say thanks for the fun link.

Tijuana Donkey Show's picture

I feel you. That site went from interesting reporting on boobs and 10 click "random ripoff of list" slide shows to sell ads. Joe is really just Johny5, pushing Blodget's book.....

No More Bubbles's picture

Who the fuck is Roubini? 

And who fucking cares what he has to say?


gwar5's picture


That's was fascinating, thanks! So there's still an inflation and deflation debate going on? Who knew.

Nuriel "John Law" Roubini better Skype the Chinese quick and tell them they're just acting a fool. 

Bernanke's scholarly take on the Great Depression was that they were too tight and didn't print enough money, hence, his own helicopter response metaphor.

Shadowfacts reports inflation at 8.5%, and it is much higher if you're a corn kernal.


Then There's this from Roubini himself, as reported at Bloomberg, February 2011:

"It’s not hyperbole when Nouriel Roubini, the New York University economist who predicted the U.S. financial crisis, says surging food and energy costs are stoking emerging-market inflation that’s serious enough to topple governments. Hosni Mubarak over in Egypt can attest to that."


And then there's this from Marc Farber's site, back in the stalled out 2009 economy, after Farber predicted severe hyperinflation:

"Prof. Nouriel Roubini at New York University, one of the few who predicted the ongoing economic turmoil, is talking about a milder but still severe inflation. During a press conference last week on the sidelines of the Seoul Digital Forum, Roubini said double-digit inflation would wreak havoc on the U.S. economy."


I think Roubini has either been hanging out at Davos too much, or, he's been swimming in dirty pond water and contracted one of those brain eating amoebas. 

Tyler only gets a TKO if Roubini has the amoebas.


DormRoom's picture

There are only a finite of delta hedge, stat arb, and other abitrage opportunities in the market for a given period of time, T.  But the number of hedge funds has been growing since 2000.  So you have to find the arbitrage opportunities first, before your competitors, or else you miss out, and are force to apply more leverage for the opportunities you do find.  Thus the HFT wars began. 


As the hedge fund industry grows linearly, but the arbitrage opportunities remaind constant, you have a structural problem.  More and more hedge funds will be forced to use ever more leverage for the arb opportunities they do find.  So if there is ever a fat tail event in the near future (cough Euro problem. cough. unwinding of the yen carry trade, due to the USD losing reserve statusm or QE3), it will be like cluster bomb hit  the financial markets, as cascade builds on top of cascade.

rosiescenario's picture

...yep, it'll make LTC look like a day on the bitch.....


I guess all that was learned from LTC was that if your are really big, you cannot fail....though one might wonder why there are no dinosaurs today....


IMHO LTC was the beginning of our current problems with Wall Street. Amazing after LTC that anyone would even want to employ a Nobel economist or listen to anything they say.....

OldPhart's picture

I admit it, I'm a dumbass.

LTC <-?  WTF?

DavidC's picture

Captain Benny,
She probably doesn't understand it.


pemdas's picture

Pretty charts, but my old brain can't get any useful information out of them.  I guess that means the algos are eating my lunch.

baby_BLYTHE's picture

which is why sitting out the fraud/manipulation and holding Gold is the best opinion any smart investor can take.

Let these algos and the big boyz blow themselves up. They will one day eat their own cooking, bailout or not.

Shocker's picture

Nothing seems to make sense anymore. Look at all theses charts and graphs your like wth.

We got alot of issues, but nothing is being done to fix it. Then we get this

Crazy Times

rocker's picture

The charts make perfect sense. There is none. That is the point. It is 100% manipulation and fraud against our capital markets.

These people, HFTs with their fancy software which knows were every order, executed or has not been executed but waiting, need to be stopped.

Until then, it is a ponzii scam worse than Bernie Madoff.

Manthong's picture

This is the perfect example of where the information gets lost in the noise.


DeadFred's picture

"The Peak occurred on August 16, 2011 (see red spikes in the middle of the chart), when the market threw a tantrum on the shocking news of a possible financial transaction tax."

Didn't anyone see or read '2001: A Space Odyssey'? When they were going to shut down Hal, the self aware computer, for just a bit he turned killer to protect himself. Here they talked about taxing (= killing) the little critters when we know they read the news?  We're lucky they just went apeshit and there weren't any nukes sent flying.

centerline's picture

Think of them as a forest fire moving from small brush to outright sky-high flaming hell while the quality of the market is reduced to dust.

Stumpy's picture

Well I do see that bots drink their binary coffee at 10am.

Id fight Gandhi's picture

Wouldn't a transaction "tax" of even a penny or fraction of a penny cut down on all this bullshit and quote stuffing? I see no value for people to load up a whole bunch or fake orders to cancel them a fraction of second later just to build artificial demand. Am I missing something here?

Raymond Reason's picture

Incredible.  Like attending an auction where anyone can cancel a bid.  This is not price discovery, it's fake.  Same with futures.

DavidC's picture

Id fight Gandhi,
You can't have a transaction tax if no transaction has taken place. Quote stuffing is just that, one algorithm stuffing quotes to slow down other algos while they analyse the quotes, and (relatively speaking) few of the quotes leading to trades, many of which get cancelled or traded out of straight away for the rebates.

What should happen (although unlikely will) is that quotes should be made to stand for, say, half a second (preferably longer, but half a second is a lifetime where 5 milliseconds or less is the norm), a large number of cancelled quotes relative to total sent should result in a fine, and cancelled trades likewise.

Everything the SEC has done has been to fix the problem once it's occurred, NOTHING has been done to STOP the problem BEFORE it happens.


Cognitive Dissonance's picture

You see, as HFT races towards zero, the data it generates decays just as fast.

Hopefully this decay rate is exponential and they all reach the singularity at the same moment.

Fireworks anyone? Or should I say one firework anyone?

Pure Evil's picture

They're all just tap dancin' on the event horizon.