The quote exception rule: Giving high frequency traders an unintended advantage
Abstract
Under the Securities and Exchange Commission (SEC) Rule 611 exchanges that have not matched a new National Best Bid and Offer (NBBO) can trade at the old NBBO for one second. In 2008, this rule allowed fast traders to earn estimated revenues of $233 million at the expense of slow traders. Furthermore, we find that when the NYSE decreased latency by 600 milliseconds on March 10, 2008, execution quality improved markedly for fast liquidity demanders, but improved only minimally for slow liquidity demanders. However, we find a decrease in volume executed at adverse prices under the faster market conditions. © 2013 Financial Management Association International.
Publication Title
Financial Management
Recommended Citation
Mcinish, T., & Upson, J. (2013). The quote exception rule: Giving high frequency traders an unintended advantage. Financial Management, 42 (3), 481-501. https://doi.org/10.1111/fima.12017
