Nanex Research

Nanex ~ 26-Aug-2014 ~ The Retail Lockout of 2014

1,384 symbols with 6 million crossed NBBOs

On August 26, 2014, starting at 11:58:25 and mostly ending at 12:37:27, quotes from FINRA ADF stopped updating and remained frozen, causing over 6 million of crossed NBBO quotes (bid price is greater than ask price) in 1,384 stocks.

There was a second period of crossed NBBOs, an after-shock, starting at 13:42 and running until just after 14:14.

All told, during regular trading hour, there were 6,022,833 crossed quotes, which was 6.2% of all NBBO quotes, and 1.7% of all top of book quotes. The 5 previous days averaged 16,080 crossed NBBOs each day.

When NBBO quotes are crossed, most retail platforms and many dark pools will reject customer orders, or hold them until the condition clears. Worse, many investor protections, such as trade through, are suspended. Furthermore, execution quality reports (SEC 605) can (and will) ignore evaluating order execution quality during the time the NBBO is crossed.

Exchanges and facilities that send quotes in NMS stocks to the SIP are required to have procedures in place to prevent stale quotes from locking or crossing the NBBO. Clearly, FINRA is lacking those procedures.

1. Number of instances where a symbol had a crossed NBBO quote during 1 second of time.
Final impact at the end of the day: this event had more instances of crossed quotes than the Nasdaq blackout or Flash Crash!

2. Percentage of NBBO quotes that were crossed.
August 26, 2014 had total 6,022,833 crossed quotes during regular trading hours, which was 6.2% of all NBBO quotes, and 1.7% of all top of book quotes.

3. Count of symbols with a crossed NBBO each second.  Event started at 11:58:25 and ended at 12:37:27.

4. Shares with subpenny price improvment from NYSE TRF for each 5 minute period shows a significant dropoff.

5. BITA - trades color coded by reporting exchange and NBBO (red indicates where it was crossed).

6. Showing Retail trades - note how these trades only occur when the NBBO is not locked (dark gray). In other words, a crossed NBBO shuts down retail order matching.

7. Retail selling - gets the worst prices when the NBBO returns to normal.

8. Retail buying.

9. Retail trades in SPY.

10. All trades in RSH.

11. All trades in JCP.

12. All trades in LRCX.
There was during the second period of crossed NBBOs - the after-shock.

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