More Than A Third Of Exchange Orders Last Less Than Half A Second

About a third of orders sent to equities exchanges in the U.S. last for less than half a second, Securities and Exchange Commission head Mary Jo White said in a speech yesterday.

More Than A Third Of Exchange Orders Last Less Than Half A Second

Stock exchange trades

“Trading today is high-tech, high-speed, and widely dispersed among many different trading venues,” said White. “The extremely short-term strategies of high-frequency trading firms represent more than half of all trading volume.”

White said that in light of multiple technical snafus in the last year, most notably the NASDAQ OMX Group, Inc. (NASDAQ:NDAQ)’s temporary shut down on August 22, the SEC would focus on operational integrity at exchanges, and that it would make MIDAS (Market Analytics Data Information System) data more easily accessible to keep the conversation based on facts instead of speculation.

As an example, White said that nearly-two thirds of visible orders rest for half a second or more before being executed or cancelled, while about a quarter of trades are filled in less than half a second. “Though we can clearly see that quotes are sometimes cancelled within a millisecond or faster, the data show that the high-speed market is not dominated by such cancellations,” she concludes.

Fake trading activity

While data is important to inform debates about equity markets, this is a good example of how different actors might view the same piece of information. Based on the two facts she gave, it seems that about 8 percent of orders are cancelled within less than half a second. It’s true that 8 percent doesn’t “dominate” the market, but if you think the majority of those order/cancellations are being used to game other high-speed algorithm firms, that’s actually quite a lot of fake activity.

White is clearly comfortable with that level of activity, and it may be harmless, but that’s ultimately a value judgment. The presence of hard data doesn’t mean regulators are making purely factual, objective decisions. Fortunately, the SEC is planning to make MIDAS data more easily accessible to the public to better inform the debate over how our equity markets ought to work.

“The new [SEC] web site should be available as early as next week and will serve as a central location for us to publicly share evolving data, research, and analysis,” said White. “Not only are we making these analyses available, we’re making them accessible. With the click of a mouse, results will be available in clear, easy-to-read charts and graphs.”