How Rigged Are Stock Markets? Evidence from Microsecond Timestamps

55 Pages Posted: 21 Jul 2016 Last revised: 13 Aug 2016

Robert P. Bartlett III

University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy

Justin McCrary

University of California, Berkeley; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: August 5, 2016

Abstract

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

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

Robert P. Bartlett III (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States
510-642-6646 (Phone)

University of California, Berkeley - Berkeley Center for Law, Business and the Economy

UC Berkeley School of Law
Berkeley, CA 94720

Justin McCrary

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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