The Life of U's: Order Revisions on NASDAQ

Abstract

By recovering data on individual revision "U"-messages on NASDAQ, this paper is the first to reconstruct and then examine chains of order revisions. In recent years, revisions have grown in popularity and now are thrice as common as executions. The research on revisions, however, is practically non-existent. We find significant differences between revisions and cancellations/placements as order updating techniques. Our results also show that while traders appear to respond rationally to new information by updating their orders, there exist stable predictable patterns in the behavior of order revisions. Additionally, there is evidence of adverse effects of revisions on market quality.

Keywords: Microstructure; Revisions; Cancellations; Algorithmic trading; NASDAQ; ITCH; Liquidity Provision; Market Quality Flickering Quotes

JEL Classification: G10; G14; G18; G40