66 Pages Posted: 21 Jul 2016 Last revised: 2 May 2017
Date Written: May 1, 2017
Using new timestamp data from the two Securities Information Processors (SIPs), we examine claims that HFT profitability results from exploiting traders who rely on SIP prices. Across $4 trillion of trades, the SIPs report quote updates from exchanges 1,130 microseconds after they occur. However, the SIP-reported NBBO matches the NBBO calculated without reporting latencies in 97% of all SIP-priced trades. Liquidity-taking orders gain on average $0.0002/share when priced at the SIP-reported NBBO rather than the instantaneous NBBO, but aggregate gross profits are just $11.6 million. These findings indicate that SIP latency arbitrage is not a meaningful source of HFT profits.
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 (May 1, 2017). 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