Out-of-control High Frequency Trading in a $90 Billion Stock

Watch the top box (which represents quotes in TSM from Nasdaq). Taiwan Semiconductor (symbol TSM) has a market capitalization of $90 Billion! October 8, 2013.

You can see High Frequency Traders placing and canceling orders up to 75 times in one thousandth of a second. This is criminal behavior. There is no other word for it. Unless the exchanges have absolutely zero controls. Anyone who claims that this is price discovery is either ignorant, or flat out lying.

Imagine bidding and canceling at an auction 75 times in a thousandth of a second (or 75,000 times per second). Then imagine trying to explain how that was "normal behavior". You'd get hauled off in a straight jacket. Or sent directly to jail.



Where the hell is the regulator? (SEC)




The bottom box (SIP) shows the National Best Bid and Offer. Watch how much it changes in the blink of an eye.

Each box represents one exchange. The SIP (CQS in this case) is the box at 6 o'clock. It shows the National Best Bid/Offer. Watch how much it changes in a fraction of a second. The shapes represent quote changes which are the result of a change to the top of the book at each exchange. The time at the bottom of the screen is Eastern Time HH:MM:SS:mmm (mmm = millisecond). We slow time down so you can see what goes on at the millisecond level. A millisecond (ms) is 1/1000th of a second.

Note how every exchange must process every quote from the others -- for proper trade through price protection. This complex web of technology must run flawlessly every millisecond of the trading day, or arbitrage (HFT profit) opportunities will appear. It is easy for HFTs to cause delays in one or more of the connections between each exchange.