High Freak Volatility
|Another great report on the Great Economic Benefit of HFT….By Nanex.
On October 3, 2011 beginning at 11:10:00.450, in the stock CA Technologies (symbol CA), a bizarre interaction between multiple HFT algorithms caused a wild oscillation in the NBBO with over 1,000 trades executing in a 35 cent range. Just before and after the event, the bid-ask spread was a narrow 1 cent, and trades executed normally in a 1 cent range. Essentially HFT caused the bid-ask spread to widen from 1 cent to over 35 cents in the blink of an eye.
During the event, the quote rate exceeded 25,000 quotes/second, which caused significant quote delays of up to 500 ms for this stock (and probably others processed on the same exchange equipment). Note that this is similar to an event which occurred in YHOO that we described as HFT trading faster than the speed of light (satire).
The chart below shows trades (circles) and the bid-ask spread (vertical lines) from Nasdaq in CA in 1 millisecond intervals. Match the upper case letters to the lower case letters to get an idea of the extent of the delay. We could fantasize that this is HFT trading faster than the speed of light and call the negative difference fantaseconds, but we know better.
The chart below is a 2 ms interval chart of the NBBO in CA 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.