HFT Quote Spam caused by Endless Algo Loop
Two HFT algorithms battled it out for 12 minutes today in preferred stock FNFG.PRB. Both of these algorithms wanted to be the best bid. One algo bids $29.45, the other penny jumps and bids $29.46. Then the other penny jumps back and bids $29.47, the other algo follows and bids $29.48. They battle up to a bid of $29.62 at which point the one algo cancels and moves its bid back to 29.45, and then the cycle repeats itself. This battle continues for the next 12 minutes with the bid price changing more than 6000 times. Total shares transacted on the exchange during this period is zero.
Take a look at the video to get a feel for how quickly the quote was changing:
Note: Video shows entire 12 minute period of algo loop that repeats itself every two seconds.
Yesterday, the SEC held a roundtable discussion on decimalization. Some participants suggested a pilot program which would change the minimum quoting increment in the mega-caps to tenths of a penny from the current penny. Could you imagine the quote traffic when algos battle for the top of the book in sub-pennies? At least Nanex will have fun analyzing all the quote pollution.
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