Revisiting May 6: How Quote Stuffing Made The Flash Crash Far More Severe Than It Should Have Been

Nanex is out with their latest analysis on what the market would have looked like on May 6 without the quote stuffing impact from HFT. If the market had in place a system such as that proposed by Nanex where there is a 50 ms minimum quote life (instead of the perpetual churning of bids and offers), 40% of quotes would not have been present during the Flash Crash sell off, and likely would not have tripped the NYSE's LRP trigger (if that was at an issue), neither would it have made NBBO arbitrage opportunities available. As Nanex shows in the second chart, the percentage of "fake" trades as a portion of total surges during the Flash Crash interval, yet eliminating those would have effectively cut the quote burden in half, making dilapidated exchanges like the NYSE capable of not losing control of the NBBO dissemination, not triggering its LRP choke points, and not providing a tremendous latency arb opportunity to subscribers of its OpenBook product.

Continuing Developments - Did Quote Stuffing Cause the Flash Crash?

Although quote-stuffing might not have been the cause of the flash-crash, the crash certainly would have been much less severe (or might not have occurred), if quote stuffing wasn't occurring. This is a subtle, but important distinction.

It is well known that many systems were overloaded on that day -- and approx. 40% of the quotes would not have been present if a minimum quote life rule of 50ms was in place.

We decided to run an analysis to see how much less traffic would be present if the 50ms rule (which we recommended in our initial Flash Crash report) would have been in place:


  1. Quotes and trades are summed for each reporting exchange for each stock.

  2. After 1 second elapses, take the difference between the quote count and trade count for each reporting exchange for each stock. (since a quote that generates a trade is certainly valid, you subtract them out for a true "pure" quote count number).

  3. If that difference is greater than 20 (there are 20 intervals of 50ms in one second), then accumulate the amount that exceeds 20.

  4. The dark blue line ("with 50ms rule") is plotted after subtracting out the accumulated amount each second.

Source: Nanex.