Nanex ~ 26-Jan-2014 ~ Locking the Market
Update: 17-Mar-2014A noticeable drop in crossed/locked quotes from FINRA's ADF started March 17, 2014 -- see 1st chart below.
Update: 06-Mar-2014Added example (see below) showing crossed quotes in SPY.
Quotes from the FINRA ADF started on February 11, 2014, have been responsible for locking and crossing the NBBO (National Best Bid Offer) over 30% of the time (thick red line below). Quotes that are crossed (bid is greater than ask) or locked (bid equals ask) are not supposed to happen according to regulations. There are many undesirable side-effects when quote cross - for example, retail trading is temporarily halted. Why is FINRA, a regulator no less, in the quote publishing business? And why are they so bad at it? Can a regulator fine itself?
It's not like they don't have rules prohibiting locked/crossed quotes:
Note the drop on March 17, 2014.
The 4 images on the right show just one example (out of hundreds of thousands) of FINRA's ADF causing a crossed NBBO. In this example, taken on March 5, 2014, the NBBO is crossed in a major symbol - SPY.
The image below is from a Google spreadsheet of FINRA ADF trades and quotes in the charts shown on the right.There are 10 trades labeled A-J which match quotes which don't appear until 73 to 152 milliseconds later. During this period, there were many other trade executions on other exchanges (as we saw in the charts on the right).