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Price Discovery and the Accuracy of Consolidated Data Feeds in the U.S. Equity Markets

Author

Listed:
  • Brian F. Tivnan
  • David Slater
  • James R. Thompson
  • Tobin A. Bergen-Hill
  • Carl D. Burke
  • Shaun M. Brady
  • Matthew T. K. Koehler
  • Matthew T. McMahon
  • Brendan F. Tivnan
  • Jason Veneman

Abstract

Both the scientific community and the popular press have paid much attention to the speed of the Securities Information Processor, the data feed consolidating all trades and quotes across the US stock market. Rather than the speed of the Securities Information Processor, or SIP, we focus here on its accuracy. Relying on Trade and Quote data, we provide various measures of SIP latency relative to high-speed data feeds between exchanges, known as direct feeds. We use first differences to highlight not only the divergence between the direct feeds and the SIP, but also the fundamental inaccuracy of the SIP. We find that as many as 60 percent or more of trades are reported out of sequence for stocks with high trade volume, therefore skewing simple measures such as returns. While not yet definitive, this analysis supports our preliminary conclusion that the underlying infrastructure of the SIP is currently unable to keep pace with the trading activity in today's stock market.

Suggested Citation

  • Brian F. Tivnan & David Slater & James R. Thompson & Tobin A. Bergen-Hill & Carl D. Burke & Shaun M. Brady & Matthew T. K. Koehler & Matthew T. McMahon & Brendan F. Tivnan & Jason Veneman, 2018. "Price Discovery and the Accuracy of Consolidated Data Feeds in the U.S. Equity Markets," Papers 1810.11091, arXiv.org.
    • Handle: RePEc:arx:papers:1810.11091
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    References listed on IDEAS

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    1. Neil Johnson & Guannan Zhao & Eric Hunsader & Jing Meng & Amith Ravindar & Spencer Carran & Brian Tivnan, 2012. "Financial black swans driven by ultrafast machine ecology," Papers 1202.1448, arXiv.org.
    2. Michael Goldstein & James J. Angel, 2014. "When Finance Meets Physics: The Impact of the Speed of Light on Financial Markets and Their Regulation," The Financial Review, Eastern Finance Association, vol. 49(2), pages 271-281, May.
    3. Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters, in: Anastasios G Malliaris & William T Ziemba (ed.), THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78, World Scientific Publishing Co. Pte. Ltd..
    4. Michael Goldstein & Shengwei Ding & John Hanna & Terrence Hendershott, 2014. "How Slow Is the NBBO? A Comparison with Direct Exchange Feeds," The Financial Review, Eastern Finance Association, vol. 49(2), pages 313-332, May.
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    Cited by:

    1. Shigeyuki Hamori, 2020. "Empirical Finance," JRFM, MDPI, vol. 13(1), pages 1-3, January.

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