September 21, 2011

Time Travel to Future by High Frequency Traders

Time travel to future by High Frequency Traders where they executed trades for which the corresponding quotes were not even available.
Per Joe and Sal of Themis Trading (via The Big Picture)
On September 15, 2011, beginning at 12:48:54.600, there was a time warp in the trading of Yahoo! (YHOO) stock. HFT has reached speeds faster than the speed of light itself. Up to 190 milliseconds into the future, or 0.19 fantaseconds is the record so far. It all happened in just over one second of trading, the evidence buried under an avalanche of about 19,000 quotations and 3,000 individual trade executions. The facts of the matter are indisputable. Based on official exchange timestamps, there is unmistakable proof that YHOO trades were executed on quotes that didn't exist until 190 milliseconds later!
HFT traders succeed by getting information a little ahead of others, a million times a day. But here they seem to have got information that was not even published yet. 
Millions of traders depend on the accuracy of exchange timestamps — especially after bad timestamps were found to be a key factor in the disastrous market crash known as the flash crash of May 2010.
Broadcasting accurate timestamps cannot be that difficult.
But let us suppose for a moment that in reality, quotes became queued (delayed) and were timestamped after leaving this queue. After detailed analysis of the UQDF data feed (see chart below) that transmits this information to traders, we find that the traffic rate for all output lines and specifically multicast line #6 which carries YHOO, were well below peak rates. So it doesn’t appear there were any capacity problems, which have always been an excellent indication of feed delay.

This raises a few thorny questions.

Does this mean there are far more delays than previously thought? Is there a delay every time we see an explosion of quotes in one stock? Because that sort of thing happens. All the time.