Nanex ~ 19-Sep-2012 ~ Locking The NBBO
The front page of the September 19, 2012 Wall Street Journal carried a story titled
For Superfast Stock Traders, a Way to Jump Ahead in Line. The
an animation which explained how a special "Hide-not-slide" order type available to HFT worked, and why it was created. It was created to avoid locking the market,
which occurs when one exchange sends a bid with the same price as another exchange's ask price, or an ask price that is the same as another exchange's bid price. Locking the market,
the video explains, is prohibited by Regulation NMS. We thought this might be a good time to show people just how often quotes are locked.
Below is an animation
of our own showing the number of stocks with locked quotes for each minute of the day since May 2010. There is a noticeable drop in locked quotes right after the Knight Trading Event
on August 1, 2012.