here is what I found FYI:

http://blog.t3live.com/2010/02/prop...lation-tax.html

"While most retail investors probably have little concept of what high frequency trading is or its impacts, active equity traders have seen its pronounced imprint on the markets. High frequency trading is an entirely legitimate strategy of using computer algorithms to execute trading strategies with ultra-low latency. Yet, the explosion in HFT has led to a major structural flaw in equity markets. This flaw is the abuse of uncharged bidding and offering for shares. Level II traders know exactly what this is as they see it day after day in every stock they trade. The book of bids and offers is supposed to be a top-to-bottom list of the prices every player in the market is willing to buy and sell a stock. In this idealized world, there is price transparency as everyone can see who wants to buy and who wants to sell should the participant chose to place a limit order. The price at any given second then is an accurate reflection of the current supply and demand for shares (ignoring the use of dark pools, hidden orders, etc.). Limit orders are meant to be the showing of an explicit intention to buy or sell shares at a predetermined price. Should a trader not want to show his hand, he can execute market orders or use reserve orders. Yet, the book no longer acts in accordance with the idealized world.

Every single listed stock’s order book is filled with false bids and false offers. These limit orders are constantly used to manipulate prices back and forth to the HFT’s advantage. Nearly every higher volume, lower priced stock has a book that is stacked with offers and bids at nearly every penny increment but the vast majority of these quotes are fake. The HFTs submitting the bulk of these orders do not have the objective of being filled on their orders. The purpose is to manipulate the price in some way. This is clearly a deceptive practice occurring in nearly every stock in the current hybrid and fully electronic markets. The high frequency trader has the explicit goal of tricking other traders into believing there is something real there when there is not. Bidding and offering without the intention of actually filling the order is nothing more than a mechanism to mislead other traders. This game, as played by HFTs, is an obscenely inefficient allocation of resources. "

Directly from the source:

http://www.nasdaqtrader.com/content...ms_revshare.pdf

From the Nasdaq note, take a look at Quote vs. Trade:

"Quote vs. trade: The plans then allocate to each SRO a portion of each issue’s income pool for quotes and trades. Quotes and trades in total per security are eligible for approximately 50% each of the symbol’s income allocation subject to the $4.00 cap per eligible trade report.
• Quotes are allocated value based on time and size at the inside market
• Trades are allocated value based on the number of eligible trade reports and reported dollar volume"

Exchanges now earn revenue for not only trade reporting but for quote reporting. And, to attract more quotes, the exchanges are very aggressive in rebating these fees to the subscribers who post the quotes.

Also, this research is interesting too:
Equity Trading and the Allocation of Market Data Revenue
http://wpcarey.asu.edu/fin/upload/C...May-27-2009.pdf

"Exchanges devised revenue-sharing and rebate programs that rewarded order-flow providers for tape shredding, and encouraged algorithmic traders to execute strategies involving large numbers of small trades. We provide evidence that data revenue allocation has influenced the trading process

In this paper, we show that the allocation formula has had a significant impact on the trading process. In particular, we demonstrate that average trade size is sensitive to changes in the marginal revenue per trade. We also find evidence that rebate programs are a key institutional mechanism through which the allocation rule influences the trading process."

So, what you guys are thinking about this? Are there is any reason to subscribe to tick by tick data with bid/ask quotes?
What a Level II is telling you actually today?