When Intercontinentalexchange Group Inc (NYSE:ICE) took over the New York Stock Exchange, sources say the real prize was in the derivatives component in the business without as much attention being paid to the stock component. Regulators were getting loose on allowing dark pools to enter the market, lightly regulated entities that don’t publishing their trading rules and have often times confusing, some have said “manipulated,” markets.
The technology driving the stock market was ultimately lost to the dark pool HFT contagion, but keeping up with this technical arms race has been trying for many exchanges and speedy traders alike. The NYSE Euronext (NYSE:NYX)’s announced data feed issue is no exception.
Data feed issues someone involve the amount of traffic inside an exchange – an issue typically associated with high frequency trading generating voluminous quotes and conditional order types that only execute if the HFT firm receives a payment for the order flow.
The ExodusPoint Partners International Fund returned 0.36% for May, bringing its year-to-date return to 3.31% in a year that's been particularly challenging for most hedge funds, pushing many into the red. Macroeconomic factors continued to weigh on the market, resulting in significant intra-month volatility for May, although risk assets generally ended the month flat. Macro Read More
The NYSE’s problems could stem from a proprietary feed that delivers pricing and quote data. Price data is by far the largest data component inside the exchange. Separate exchange sources have indicated how HFT quote and conditional order types have dramatically boosted data volume, pushing systems to near a breaking point.
When reached, an NYSE spokesperson declined to comment on the record.
The NYSE said the outage did not impact trading
While the exchange said the issue did not impact trading, a mini-flash crash discovered in the market for AOL, Inc. (NYSE:AOL) resulted in busted trades. Some say the AOL price spike – some have called it a “mini” flash crash – and the data breach are separate issues. The NYSE has two policy statements on the matter that support this view. Others aren’t so sure, as data issues are typically related to pricing which has been noted to be impacted by HFT quote and order flow.
What was tweeted as “flash crash” noted Tuesday by Marketwatch
On Tuesday, the NYSE canceled certain AOL trades and a mini-flash crash had occurred, noted by Marketwatch’s Wallace Witkowski in a Twitter post and photograph.
To those inside algorithmic trading, mini flash crashes were nothing new. They typically get mislabeled and unnoticed which is why they don’t make the headlines more often.
Technical issues a previous issue, NSA brought in to investigate
Trading meltdowns from massive surges in data usage have been an issue before, with trading meltdowns occurring in August of 2013 that led to involvement of the NSA in the investigation and a meeting with SEC Chairwoman Mary Jo White. It is unknown if high frequency trading and the impact it had on data flow was an issue addressed in the meeting. For its part, derivatives operator CME Group Inc (NASDAQ:CME) claims to have had its trading engine hacked and had the agricultural market close one afternoon, bringing back open outcry in the pit for one hilarious day.
The NYSE issued a statement regarding the data feed issue: “The NYSE BBO data feed is currently experiencing an issue with the symbol range D through J,” the exchange said in a notice at 11:38 a.m EST. It is important that BBO stands for best bid and offer and is related to the quotes and prices generated. This has been an issue idenitified by former CFTC Commissioner Bart Chilton and communicated to the SEC. A Marketwatch report defined the BBO further:
“The BBO feed is not the feed that goes to the Securities Information Processor, or SIP, run by the NYSE Euronext (NYSE:NYX). The SIP is a system that consolidates quote and trade data for U.S. stocks. The NYSE said further information will be provided shortly, and all other NYSE systems were functioning normally.
For his part, ICE’s Spechler isn’t alone in having technical issues. In the past he pointed to the root of the problem and has advocated for simpler markets and has voiced concerns with exchange rebates, also known as payment for order flow. When the pipes are stuffed with “fake” order flow and then data issues occur Spechler is advocating that one root of the problem be investigated.