medium · Market Microstructure
A Securities Information Processor (SIP) consolidates quotes from all 16 U.S. equity exchanges with an average latency of 950 microseconds. An HFT firm receives direct feeds from each exchange with a latency of 50 microseconds. Exchange A posts a new best offer of 100.05 (improving the prior NBBO offer of 100.10).
Approximately how long does the SIP-informed slower router remain exposed to the stale quote, and what trade does the HFT execute to capture the latency arbitrage?
- 900 microseconds; the HFT lifts the stale 100.10 offer on any exchange still displaying it and simultaneously posts a sell limit at 100.05 on Exchange A.
- 900 microseconds; the HFT buys at 100.05 on Exchange A via its direct feed and sells at the stale 100.10 offer on another exchange whose SIP-reported NBBO has not yet updated.
- 950 microseconds; the HFT sells at 100.10 on Exchange A and buys at 100.05 on a slower exchange.
- 50 microseconds; the HFT benefits only from the direct-feed latency itself, not from the SIP consolidation lag.
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