Working Paper: NBER ID: w22551
Authors: Robert P. Bartlett III; Justin McCrary
Abstract: We use new timestamp data from the two Securities Information Processors (SIPs) to examine SIP reporting latencies for quote and trade reports. Reporting latencies average 1.13 milliseconds for quotes and 22.84 milliseconds for trades. Despite these latencies, liquidity-taking orders gain on average $0.0002 per share when priced at the SIP-reported national best bid or offer (NBBO) rather than the NBBO calculated using exchanges’ direct data feeds. Trading surrounding SIP-priced trades shows little evidence that fast traders initiate these liquidity-taking orders to pick-off stale quotes. These findings contradict claims that fast traders systematically exploit traders who transact at the SIP NBBO.
Keywords: stock markets; microsecond timestamps; SIP reporting latencies; liquidity takers; fast traders
JEL Codes: G10; G15; G18; G23; G28; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| SIP reporting latencies (C41) | information asymmetry disadvantaging slower traders (D82) |
| SIP latencies (L96) | trade profitability (F14) |
| trades executed at the SIP NBBO (G24) | worse pricing outcomes (L11) |
| trades executed at the SIP NBBO (G24) | liquidity providers negatively affected (F65) |
| fast traders exploiting stale quotes (G14) | liquidity-taking trades (G15) |
| SIP NBBO (G24) | favorable pricing for liquidity takers (D41) |
| direct NBBO (G19) | trade execution performance metrics (G15) |