hard · Market Microstructure hft
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?
- About 900 microseconds of exposure; the HFT lifts the stale 100.10 offer wherever a slower exchange still shows it, then posts a fresh sell limit at 100.05 on Exchange A to rebuild inventory.
- 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.
- The full 950-microsecond SIP latency; the HFT sells at the new 100.10 quote on Exchange A and simultaneously buys at 100.05 on a slower, still-stale exchange feed.
- Only 50 microseconds; the HFT profits purely from its own direct-feed speed advantage, not from any SIP consolidation lag or stale-quote exposure window.
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