Using the most comprehensive, commercially-available dataset of trading activity in U.S. equity markets, we catalog and analyze latency arbitrage opportunities and realized opportunity costs (ROC) incurred by market participants. We find that latency arbitrage opportunities are common, observing a total of over 3.1 billion latency arbitrage opportunities in the Russell 3000 during trading in 2016, or roughly 525 per second of trading. Up to 23\% of observed trades may have contributed the the measured inefficiencies , leading to a ROC greater than 2 billion USD. A subset of the constituents of the S&P 500 index experience the greatest amount of ROC and may drive inefficiencies in other stocks. In addition, we identify fine structure and self-similarity in the intra-day distribution of latency arbitrage opportunity start times. These results point to universal underlying market mechanisms arising from the physical structure of the U.S. National Market System.
Using the most comprehensive, commercially-available dataset of trading activity in U.S. equity markets, we catalog and analyze quote dislocations between the SIP National Best Bid and Offer (NBBO) and a synthetic BBO constructed from direct feeds. We observe a total of over 3.1 billion dislocation segments in the Russell 3000 during trading in 2016, roughly 525 per second of trading. However, these dislocations do not occur uniformly throughout the trading day. We identify a characteristic structure that features more dislocations near the open and close. Additionally, around 23\% of observed trades executed during dislocations. These trades may have been impacted by stale information , leading to estimated opportunity costs on the order of 2 billion USD. A subset of the constituents of the S&P 500 index experience the greatest amount of opportunity cost and appear to drive inefficiencies in other stocks. These results quantify impacts of the physical structure of the U.S. National Market System.
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latency arbitrage opportunities and realized opportunity costs (ROC) incurred by market participants. We find that latency arbitrage opportunities are common, observing
quote dislocations between the SIP National Best Bid and Offer (NBBO) and a synthetic BBO constructed from direct feeds. We observe
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latency arbitrage opportunities
dislocation segments
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or
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However, these dislocations do not occur uniformly throughout the trading day. We identify a characteristic structure that features more dislocations near the open and close. Additionally, around
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may have contributed the the measured inefficiencies
executed during dislocations. These trades may have been impacted by stale information
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a ROC greater than
estimated opportunity costs on the order of
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ROC and may
opportunity cost and appear to
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In addition, we identify fine structure and self-similarity in the intra-day distribution of latency arbitrage opportunity start times. These results point to universal underlying market mechanisms arising from
These results quantify impacts of