Nanex Research

Nanex ~ 24-Jan-2014 ~ Quote Spread: 1 Cent or 1 Percent?

Quote Spread Relativity

On January 24, 2014 at 12:08:54, the stock of Mondelez International, Inc (symbol: MDLZ, market cap: $60 billion) shot 1.2% higher in one third of a second, then fell back over the next 2 seconds. Approximately 1000 trades (190 thousand shares) from 10 exchanges and an unknown number of dark pools participated in the run up.

What makes this event fascinating is that during the furious run-up, the NBBO spread (the national best bid/offer) remained a tight 1 cent for most of time. But in the time it takes to blink an eye (1/3 of a second), the price range exceeded 1 percent! Which means, while a co-located High Frequency Trading (HFT) machine will see and can participate in a 1 cent spread, someone in California will observe a much wider spread. This is because it takes information about 50 milliseconds to travel from the exchange in New Jersey to California.

How can these quotes be called NBBOs (as in "National" Best Bid/Offers) when California is still a part of our nation? Shouldn't they really be called CBBOs - Co-located Best Bid/Offers?

See also BMY from same day.

1. MDLZ trades rocket up and back. Spread remains near 1 cent.

2. MDLZ - Zooming in on 6 seconds of time.

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