Trader Talk

SEC launches new website for market analysis

SEC Chairwoman Mary Jo White
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The Securities and Exchange Commission on Wednesday launched a site on market structure to serve as a central location to share data and research. It's a gold mine of information on how the market is trading.

SEC Chief Mary Jo White touted the recent acquisition of a trade-information system called Midas, which the SEC bought from Tradeworx last year. The system allows participants to see much more information about what is trading than is normally available.

What kind of data? Today most traders can see only price and volume. This information will likely be much more robust: you'll be able to see total number of new orders, and the total number of cancellations....all broken down by exchange.

Today, they are making that data available to the public. It's a lot of data: They collect information on over a billion trades a day.

What you won't be able to see, I am told, is who made the trades. That will remain anonymous to everyone except the SEC.

Here's the site: http://www.sec.gov/marketstructure/#.UlVkYlNcXTo

But it's a lot of data. How to take a billion records a day and put it into some form that can be analyzed?

Gregg Berman from the SEC demonstrated a few interesting findings from the initial research.

First, order cancellations—for every thousand shares that get posted, how many get canceled? Berman counted all the orders and showed what percentage resulted in trades—roughly three percent actually get traded, 97 percent get canceled. He didn't comment on whether this was good or bad but said the SEC at least has a baseline to study the overall market and see if it changes.

Second, trades below 100 shares (odd lots) do not show up on the public tape, but Berman said that his analysis showed that 19 percent to 20 percent of all trades fall into this category and do not qualify to be put on the public tape. One-third of transactions in high-priced stocks do not show up on the public tape, which makes sense as they are more expensive. This is a rather surprising finding.

Third, how long does an order stay in the market before it is executed or canceled? How many events happen in one microsecond, two microseconds, etc.? There have been accusations that some high-frequency traders send huge orders to the market that are rapidly canceled, possibly for the purpose of manipulating the market. The data indicates that:

  • nearly 100 percent of all orders are either canceled or result in a trade within 10 minutes of being placed;
  • more than one-third of all orders stay in force for at least five seconds, and over 60 percent of all orders that are canceled are in force for more than half of one second;
  • no more than one-quarter of all cancellations occur in less than 50 milliseconds, and less than eight percent of all cancellations are faster than 500 microseconds.


What does this mean?

"Though this is a substantial number of events, the data do not show that the market for corporate stocks is, at least presently, dominated by orders that are canceled in milliseconds. ... The data show that the vast majority of quotes can be accessed by at least some market participants before they are canceled," the SEC said. "The data do not show a market that is currently dominated by quotes that are canceled so fast that they cannot be accessed."

This is a big site, with lots of information. There are already white papers on Market Fragmentation and The Speed of the Equity Markets.

This is going to be a treasure of analysis for the trading community. We will finally start getting some genuine information on what is going on with our markets that can be used to drive informed policy decisions.

By CNBC's Bob Pisani

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