Yahoo! Rockets Higher, Exposing Timestamp Anomaly Back to Main Research Page On September 15, 2011, beginning at 12:48:54.600, we witnessed a time warp: trade executions occurred up to 190  milliseconds in time before their corresponding quotations. It all happened in just over one second, the evidence buried under an avalanche of about 19,000 quotations and 3,000 individual trade executions. This surge was not enough to plug up the UQDF/UTDF data feeds that transmit this information to traders, mostly because there was little activity in other stocks at that time. At least it appeared that way, because looking at those feeds in detail (both the overall feed and the individual multicast line # 6) show they have carried far more data at other times -- but probably not concentrated in just one symbol. All exchanges and trade reporting facilities were sending trades ahead of quotations, except for the Nasdaq Trade Reporting Facility (NTRF) which appeared to be transmitting some trades in sync with the lagging quotations -- more on that shortly. Right before and after this event, quotes and trades in YHOO had exchange timestamps with the same time: they were properly synchronized. The first chart is a 250 ms interval chart of the NBBO in YHOO which is plotted as vertical lines and colored red if the NBBO was crossed during the interval, yellow if it was locked, and gray if it was normal. The implied quote rate is shown as a histogram at the bottom -- and scaled in quotes/second. We will focus on the time shown in the black circle. The next chart shows the area encircled above in detailed 2 millisecond intervals. The next chart includes trade executions, which are plotted as dots or squares and are sized according to trade size. Each reporting exchange uses a unique color and shape. An exchange code table appears at the end of this page. NTRF is shown as light green squares. What is unusual about this chart is that trades are reported ahead of quotes. The dots/squares should trail after the quotes. We can see the delay more clearly if we isolate two of the more active exchanges, in this case, Nasdaq (1, black) and NYSE/ARCA (7,red). The bid/ask spread is plotted as vertical bars -- black for Nasdaq, red for NYSE/ARCA. You can clearly see that the bid/ask spread has the same shape as the trades, except it is offset to the right. The quotes should always come before, or to the left of the trades. The offset is the minimum extent of the delay. If we plot quotes and trades from just one of the active exchanges on a 1 millisecond interval chart, we can easily measure how far in time the trade messages came before the quotes and therefore estimate the minimum amount of time the quotes were delayed. So how can a trade execution occur before the quote it executed against? Unless a worm hole opened up on Wall Street, it can't. We think the quotes became delayed. But how can someone execute against an old quote? They can't. 19,000 quotes and 3,000 trades didn't come from humans. This is the work of a HFT computers hooked directly into the exchanges. Though the timestamps placed on these quotes don't show it, the data storm spewed out by HFT had to plug up the data somewhere. Regulation NMS is pretty clear that direct exchange feeds are prohibited from sending quote and trade data to recipients ahead of the SIP  (UQDF/UTDF) -- which computes the NBBO after all.  This raises a few thorny questions. How does one ensure trade-through price protection if the price being protected hasn't even occurred yet? Are the timestamps being altered to hide delays? Because this event was isolated to one stock, it wasn't enough to overwhelm the feed, yet there is clearly a significant delay. Does this mean there are far more delays than we previously though? Is there a delay every time we see an explosion of quotes in one stock? Because that sort of thing happens. All. The. Time. There is something else interesting about this event. As mentioned earlier, some of the trades reported through NTRF had prices/timestamps that aligned with trades from other venues, but the other trades had prices/timestamps that aligned with the delayed quotes.  Same timestamp. Reported in sequence with the other trades. Very few trades, if any, were in between. It could be that some of these trades were reported late and the lateness coincidentally matched the delay in the quotes. However, we did find that the cumulative size for the NTRF delayed trades was very close to the cumulative size of the non-delayed trades. It would be interesting to know if the same firm was a party to both the delayed and non-delayed transactions in NTRF. Though, this is something only a regulator could find out. What if you were an internalizer -- someone that matches customer orders internally instead of sending them to an exchange for execution. Internalizers execute trades based on prices from the SIP, which in this case, is UQDF. What if you knew the extent of the quote delay within UQDF? You could sell stock at the "real" quote using a direct non-delayed feed, and buy stock from the internalized order flow at the lower, UQDF reference price and capture the difference. Below is a 1 millisecond interval chart showing trades from Nasdaq (black dots) and NTRF (green squares) along with the NBBO. Circle 1 is the time immediately preceding the event when everything was synchronized. Circle 2 shows NTRF trades that line up with trades from Nasdaq (and all other markets). Circle 3 shows NTRF trades that line up with the delayed quotes. The chart below shows quote message rates for UQDF and multicast line #6 which is the line that carries YHOO quotes. The time of the event is shown at the lower left. Although traffic from YHOO was a significant percentage of all traffic on UQDF, it was still not high enough to indicate any problems. Note that the surge on the right side of the chart is much higher. Exchange Code Legend: 1 NQEX Nasdaq Exchange 4 AMEX American Stock Exchange 7 PACF NYSE ARCA 8 CINC National Stock Exchange 9 PHIL Philidelphia Stock Exchange 11 BOST Boston Stock/Options Exchange 57 NQNX NSX Trade Reporting Facility 59 NTRF NYSE Trade Reporting Facility 60 BATS BATS Trading 63 BATY BATS Y Exchange 64 EDGE Direct Edge A 65 EDGX Direct Edge X Inquiries: pr@nanex.net Publication Date: 09/15/2011 http://www.nanex.net This report and all material shown on this website is published by Nanex, LLC and may not be reproduced, disseminated, or distributed, in part or in whole, by any means, outside of the recipient's organization without express written authorization from Nanex. 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