QUOTE STUFFING WAS JUST THE START

When will the SEC finally create some kind of rules for HFT, like "Every trade must be executed by  human"? That would be nice. The Quote Stuffing that coincided with the end of day sell-off was so out of control, that NASDAQ almost had to reset their system!  To understand how close we were, this message was sent out 24 minutes before the close, what the final tally was, it may have been very close (you'll understand). Here's the details from NASDAQ...

Monday, August 08, 2011

UTP Vendor Alert #2011 - 2
UTP SIP Reminds Firms of Message Sequence Reset Procedures

Products Impacted:

• UTP Quotation Data Feed (UQDF)

Contact Information:

• NASDAQ OMX Global Data Products at +1 301 978 5307

What you need to know:

• Given today’s extraordinary market conditions, the UTP Securities Information Processor (SIP) processed more than 92.5 million quotations on the UTP Quotation Data Feed^SM (UQDF^SM) Channel 6 (NASDAQ-listed symbols S to Z) during normal market hours.
• As outlined in the UQDF data feed specifications, the UTP SIP has a message sequence number limitation of 99 million quotation updates per channel per day.
• If the UTP SIP processed more than 99 million messages for a single data channel, it would need to exercise the sequence number reset procedures as outlined in the UQDF specification document.

• When the UQDF message sequence number hits 99 million, the UTP SIP will disseminate a Category C – Type L reset event message on the affected UTP data channel.
• Following the reset event, the UTP SIP will restart its message sequence number count to zero for the affected channel.
• Please note: The UTP SIP will be unable to process retransmission requests for data sent prior to the reset event.

_____________________________________________________________________________ I personally have never seen this before, but with HFTs going berserk in to the close with fake orders, it's not hard to imagine why.

Essentially, for tickers that start with "S"-"Z", there's a dedicated channel to serve up to 99 million quotes for the day, at the end of the trading day it is reset and starts at zero, however today there was so much quote stuffing that the NASDAQ was only about 7% away from a system failure that would have forced a re-boot during the trading day. What the effects would be, I'm not sure anyone knows. One effect would be all previous orders would be nullified as they are essentially erased. Apparently there's some that think you wouldn't be able to even get a quote, much less trade.