• US stock market daily report (August 13, 2015, Thursday)

    According to Eric Hunsader, founder of Nanex LLC, U.S. financial markets consultancy firm, high-frequency traders (HFT) have a 500-microsecond advantage for Nasdaq OMX Group, Inc. (NDAQ - Nasdaq) quote data, over any firm that does not use a direct feed from the exchanges for quote prices.

    New software changes implemented by the New York Stock Exchange (NYSE) made the analysis possible. The analysis measured the difference in speed between data transmitted by exchanges to direct feeds and data transmitted to the Security Information Processor (SIP) which links the U.S. equity markets by processing and consolidating all bid/ask quotes as well as trades from every trading venue into a single, easily consumed data feed.

    On behalf of U.S. stock exchanges, the Nasdaq and NYSE each operate a SIP. The NYSE also operates a SIP for options exchanges. For a fee to investors, information is distributed to market-data providers such as Nanex and others. For processing the SIP, exchanges earn hundreds of millions of dollars in fees. Nanex provides research and analytical tools for interpreting the data from the SIP and other proprietary sources.

    Based on the analysis by Hunsader, a delay in receiving a quote by 500 microseconds makes it difficult for anyone to compete with HFT firms. He describes the HFT business model under these conditions as essentially riskless. Hunsader said, “They know how both sides of the trade will come out before they ever press the button.”

    Hunsader said, “In approximately 300 microseconds, they can cancel an order in [data center] Carteret from [data center] Mahwah or in Mahwah from Carteret. From BATS, they can cancel/front run at Mahwah in approximately 200 microseconds or Carteret in approximately 150 microseconds.”

    Additional analysis by Hunsader shows that - consolidation time is typically no more than 15 microseconds, leaving 225 microseconds of unexplained time.

    Contributed by Millennium Traders
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