Bloomberg is reporting an unprecedented number of quotes in recent days, rising to new highs on Wednesday even as overall volume was down slightly, an indication of unfilled orders and the likely presence of active high frequency traders.
According to Vipul Nagrath, Bloomberg’s global head of research and development, the firm has never seen such a high level of “ticks” in the market. In fact, tick activity is about 35 percent higher than anything seen up to this point–including the “flash crash” of May 6, 2010.
A tick is a measure of the various offers to buy or sell securities, also called quotes. Traditional volume measures look only at shares that actually change hands, but ticks take into account all market quote activity, whether an order is filled or not.
“The tick volume is up dramatically, when the actual volume of shares traded isn’t at the highest levels that we’ve seen,” Nagrath said. “Every time an order goes out, even though it’s canceled, for us it counts as another tick, another quote.”
Wednesday set an all-time high of 43.7 billion ticks. That was about one and a half times the number of ticks recorded during last year’s flash crash. Yesterday, data showed about 38 billion ticks, according to Bloomberg.
Tick volume had surpassed the flash crash record only once before, in the wake of the tragic tsunami in Japan, when the markets saw about 30 billion ticks.
Nagrath said HFTs were the likely culprit for the increase in ticks. He pointed out that while overall volumes were high on Wednesday, they were actually down somewhat from the previous day. (According to BATS Trading, U.S. equity volume was 15.2 billion shares on Wednesday, down from 16.9 billion shares on Tuesday.)
“The tick volumes–the per second flow of ticks as well as the aggregate tick volume in the day–both of those are up extremely high,” Nagrath said. “And I believe that some of it is probably due to HFTs. The algorithms are out there, putting these bids and offers out, not getting a fill on the other side, and then canceling it.”
Another factor that can increase ticks is smaller share sizes. That is also an indication that HFTs might be present, and that fear of HFTs could be causing firms to break up their orders into smaller chunks.
“The number of shares per trade has really dropped, and at the same time the number of quotes has escalated,” said Eric Hunsader, founder of the data-feed provider Nanex.
Though the average trade size back in 2002 was about 1,000 shares, it gradually dropped to around 250 to 300 shares per trade, Hunsader said. In the last six months trade sizes have dropped even further, and in the last week further still, he added.
“A lot of it’s a product of high frequency trading, and it’s a product of people knowing you don’t want to show your size, because if you show your size, it’s only to your disadvantage,” Hunsader said.
Some high-frequency traders have confirmed they’ve been active in the markets this past week. Manoj Narang, founder and chief executive officer of Tradeworx, a Red Bank, N.J.-based HFT, told Traders Magazine his firm was profiting from the increased volumes in the market.
Gary Wedbush, executive vice president and head of capital markets at Wedbush Securities, said in an interview with Bloomberg that his execution and clearing firm is seeing a tremendous amount of high-frequency trading, sometimes five times as much as normal.
