http://zacharydavid.com/2014/04/on-hft-part-ii-bugs-features-and-aggressive-incompetence/#A-Bug http://zacharydavid.com/2014/04/on-hft-part-ii-bugs-features...

http://zacharydavid.com/2014/04/on-hft-part-ii-bugs-features-and-aggressive-incompetence/#A-Bug http://zacharydavid.com/2014/04/on-hft-part-ii-bugs-features... This blog post details similar issues that can lead to rapidly canceled orders. Generally, firms that are smart avoid moving their prices around "too much" since: a.) You lose your spot in the queue. If I am near the front of the price/time queue buying at 100.01 and move to 100.00 and back up again, now I'm behind everyone else and will either lose opportunity or face more negative selection (I'll only trade when someone wants to sell all the contracts bid at 100.01, whereas before I would get some trades where someone only wants to sell a few). b.) Sending orders is more computationally expensive than doing nothing. If you send enough orders you will slow down your own system. c.) Depending on market rules and behavior the messages you send may cause your gateway to queue up or block you from sending more messages which hurts you. I don't think quote flicker can provide any "evil" benefit to the person doing it. It doesn't make sense to do it to slow down competitors, since most feeds are multicasted to everyone and you still have to process all the orders you send, both from the gateway and over the data feed. If you are faster at handling this situation than your competition then you are going to beat them anyway so what's the benefit in slowing them down? I do think it can be disruptive in the sense that it places extra load on the exchange and can annoy participants who have trouble taking prices on their screen. Some markets have quote/trade rules to encourage more efficient messaging which is their right and not a bad idea if the limits are set reasonably. Rules like this make more sense than a minimum resting time, which just penalizes makers at the expense of fast takers. Imagine I am putting quotes out in SPY, an S&P 500 ETF, but they need to rest for half a second. Someone sees the S&P 500 futures or the individual stocks move and then my quote becomes a free option to trade at an unfair price. In a market like this, market makers would be forced to put up wider prices to compensate for these losses. A high quote/trade ratio in itself is not disruptive. A lot of the Nanex charts use thinly traded derivative products like ETFs as their whipping boy. The underlying value of these products will change whenever another stock or commodity changes, so market makers need to update their quotes quite rapidly to avoid trading at unfair prices, even if no trades have occurred in the product itself.