Submitted by Nanex

On September 29, 2011, beginning at 14:08:25, quote rates from one stock, AMD, accounted for nearly half of all equity quotes. The pattern of data is similar to what we found in Dell a month earlier. There were 6 seconds that each had over 20,000 AMD quotes.



We are having trouble finding the appropriate superlative to describe the level of lunacy that generated this event, and the incompetence of regulators to allow it to continue. And continue it does: both in frequency and magnitude. Soon 20,000 quotes/second per stock will be the new normal.



This problem will only continue to grow until one day, when there is real market impacting news, there simply won't be enough bandwidth or computing power to process legitimate equity prices. And everyone will wonder what happened. The last time that occurred was May 6, 2010.



To this day, regulators still believe stub quotes and Liquidity Replenishment Points were a cause of the flash crash, when anyone who actually looks at the data will find that nearly all of the stub quotes and LRP's didn't occur until after the market bottomed. Regulators continue to cling to the myth that Waddell and Reed's trade was major cause of the event, when once again, anyone who actually looks at the data will find that the bulk of the sell order was executed after the market bottomed.



And what is inexcusable, is that the regulators didn't even bother to interview the traders that ran the algorithm used by Waddell and Reed until two weeks after they published their report! Maybe it was because it took them 5 months just to assemble the data, and they ran out of time for any serious analysis. Too bad if that is the case, because the next time we have a serious market event, they will be facing at least 4 times as much data that overwhelmed them before.

Time #Quotes 14:08:25 4,126 14:08:26 15,390 14:08:27 13,260 14:08:28 20,517 14:08:29 25,687 14:08:30 27,089 14:08:31 24,702 14:08:33 11,279 14:08:34 2,696 14:08:35 16,619 14:08:36 13,351 14:08:39 20,871 14:08:40 23,563 14:08:41 5,171 14:08:49 1,233

AMD - ADVANCED MICRO DEVICES, Price and Sizes for 2 second period of 14:08:29, 14:08:30

Zoom in of previous chart showing the sequence:

The impact on CQS Line # 1 (Red). AMD quotes make up the majority of quotes on that line. Chart shows quotes/second on a 1 second interval.

Zoom in of previous chart showing quote traffic rates on a 50 ms interval.