HOW IS HIGH-FREQUENCY DATA RECORDED?

The highest-frequency data is a collection of sequential “ticks,” arrivals of the latest quote, trade, price, order size and volume information. Tick data usually has the following properties:

• A timestamp
• A financial security identification code
• An indicator of what information it carries:
  • Bid price
  • Ask price
  • Available bid size
  • Available ask size
  • Last trade price
  • Last trade size
• Security-specific data, such as implied volatility for options
• The market value information, such as the actual numerical value of the price, available volume, or size

A timestamp records the date and time at which the quote originated. It may be the time at which the exchange or the broker-dealer released the quote, or the time when the trading system has received the quote. At the time this article is written, the standard “round-trip” travel time of an order quote from the ordering customer to the exchange and back to the customer with the acknowledgement of order receipt is 15 milliseconds or less in New York. Brokers have been known to be fired by their customers if they are unable to process orders at this now standard speed. Sophisticated quotation systems, therefore, include milliseconds and even microseconds as part of their timestamps.

Another part of the quote is an identifier of the financial security. In equities, the identification code can be a ticker, or, for tickers simultaneously traded on multiple exchanges, a ticker followed by the exchange symbol. For futures, the identification code can consist of the underlying security, futures expiration date, and exchange code.

The last trade price shows the price at which the last trade in the security cleared. Last trade price can differ from the bid and ask. The differences can arise when a customer posts a favorable limit order that is immediately matched by the broker without broadcasting the customer's quote. Last trade size shows the actual size of the last executed trade.

The best bid is the highest price available for sale of the security in the market. The best ask is the lowest price entered for buying the security at any particular time. In addition to the best bid and best ask, quotation systems may disseminate “market depth” information: the bid and ask quotes entered posted on the trading venue at prices worse than the best bid and ask, as well as aggregate order sizes corresponding to each bid and ask recorded on the trading venue's “books.” Market depth information is sometimes referred to as the Level II data, and may be disseminated as the premium subscription service only. In contrast, the best bid, best ask, last trade price and size information (“Level I data”) is often available for a small nominal fee.

Exhibit 20.1(A) and (B) illustrate a 30-second log of Level I high-frequency data recorded by NYSE Arca for SPDR S&P 500 ETF (ticker SPY) from 14:00:16:400 to 14:02:00:000 GMT on November 9, 2009. Exhibit 20.1(A) shows quote data: best bid, best ask, and last trade information, while (B) displays corresponding position sizes (best bid size, best ask size, and last trade size).