55 Pages Posted: 21 Jul 2016 Last revised: 13 Aug 2016
Date Written: August 5, 2016
We use new timestamp data from the two Securities Information Processors (SIPs) to examine SIP reporting latencies for quote and trade reports. Reporting latencies average 1.13 milliseconds for quotes and 22.84 milliseconds for trades. Despite these latencies, liquidity-taking orders gain on average $0.0002 per share when priced at the SIP-reported national best bid or offer (NBBO) rather than the NBBO calculated using exchanges’ direct data feeds. Trading surrounding SIP-priced trades shows little evidence that fast traders initiate these liquidity-taking orders to pick-off stale quotes. These findings contradict claims that fast traders systematically exploit traders who transact at the SIP NBBO.
Statement of Financial Disclosure and Conflict of Interest: Neither author has any financial interest or affiliation (including research funding) with any commercial organization that has a financial interest in the findings of this paper. The authors are grateful to the University of California, Berkeley School of Law, for providing general faculty research support.
Keywords: latency arbitrage, high-frequency trading, SIP, market structure
JEL Classification: G10, G15, G18, G23, G28, K22
Suggested Citation: Suggested Citation
Bartlett, Robert P. and McCrary, Justin, How Rigged Are Stock Markets? Evidence from Microsecond Timestamps (August 5, 2016). UC Berkeley Public Law Research Paper No. 2812123. Available at SSRN: https://ssrn.com/abstract=2812123 or http://dx.doi.org/10.2139/ssrn.2812123
By Lin Tong