The Huge Shift In Market Structure That Occurred Yesterday

Equity markets relatively collapsed intraday yesterday given the recent lack of volatility with the range around four times larger than the three-month average and volume at its highest in that period. While that is significant of itself, as the S&P broke its uptrend, Nanex has found a much more serious shift in the market structure that occurred yesterday. Soon after the open on the US day session, market-making HFTs surged their quote-stuffing efforts to the highest level in months. Whether this was intended to artificially inflate orders to enable institutional sell-orders to be crossed with falsely hopeful retail orders is unclear but given the order flow and direction of trade, it seems something significant changed yesterday.

Via Nanex,

On February 25, 2013, starting around 10:35, the number of quotes relative to the number of trades began surging and rocketed to levels not seen for several months. Although the levels have not come anywhere near the preposterous heights set back in August 2011 (when HFT reigned with impunity), the surge is enough to warrant extra attention. Charts below plot the ratio of quotes to trade value (similar to Quotes/Trades but in way to better compare the shifting lower transaction size since 2006). Each line shows the one-minute average value for all NMS stocks (about 8,000) for each minute of one trading day (9:30 to 16:00 ET), color coded by age: older dates towards the violet end of the spectrum, while recent days are colored towards the red end. The thick red line is Feb 25, 2013: note the surge doesn't start until about 10:35.

A total of 764,962,237,673 quotes and  43,688,052,096 trades were processed to create Chart 2.

1. Quotes per $10K of stock traded. One-minute average from Jan 2013 through Feb 25, 2013 for every minute of the trading day. Red line is Feb 25, 2013.
Things are normal until about 10:35am, when quote spamming surging. 

2. Same as chart above, but showing from Jan 2007 through Feb 25, 2013
Excessive quote traffic has been on the decline. Though the surge on Feb 25th stood out in stark contrast to recent trading, it is still way below the crazy days of August 2011, when HFT reigned with impunity.

3. SPY 30-Minute OHLC bar chart. Red Arrow indicates when the surge in quotes began.