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I am looking at one day of AAPL quotes (3 Dec 2012) from TAQ to examine quote-based high frequency vol estimators. However, I found that a number of exchanges, when quoting noncompetitively, seem to display persistent values that I cannot seem to justify (i.e. the levels are so far that I can't imagine they correspond to any regulation-based requirement). Can anyone reconcile this?

The red vertical lines represent open and close. asks bids where 

A  = American Stock Exchange 
B  = Boston Stock Exchange 
C  = National (Cincinnati) Stock Exchange 
D  = NASD (ADF) 
E  = Market Independent (SIP - Generated) 
I  = ISE 
M  = Chicago Stock Exchange 
N  = NYSE 
P  = NYSE Arca 
T/Q= NASDAQ Stock Exchange 
S  = Consolidated Tape System 
W  = CBOE 
Z  = BATS 
J  = DirectEdge A 
K  = DirectEdge X 
X  = NASDAQ OMX PSX 
Y  = BATS Y-Exchange Inc.
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  • $\begingroup$ Can you see info on the individual orders? (Not too familiar with US market). $\endgroup$ – user2763361 Apr 21 '14 at 11:44
  • $\begingroup$ Unfortunately, I suspect all I have are trades and quotes, but I will check. $\endgroup$ – Jacob M. Morley Apr 21 '14 at 16:38
  • $\begingroup$ I've seen this persistence in my market (although the insides have always been competitive, the persistence is just far from BBO). Not sure what to make of it. It's not market makers (orders weren't being amended and too large), and it's not retail (orders were too large). That leaves buyside execution. Not sure the motive though. It could be a model with an equilibrium price that is far from market, and the traders for that fund will quote there for a jump on the queue at a future date ... Also if these markets have heavily discretized price process this is to be expected. $\endgroup$ – user2763361 Apr 21 '14 at 17:51
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    $\begingroup$ Also note that my answer to quant.stackexchange.com/questions/9546/deep-bid-ask-orders may be the answer to this question. $\endgroup$ – user2763361 Apr 21 '14 at 18:31
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The venues all have one thing in common (as best I can tell from looking at your colors): they are all inverted pricing venues (a fee is paid by the maker, and a rebate is paid to the taker).

What you're seeing is likely caused by temporary liquidity shortages at those venues, most commonly as a result of aggressive takers sweeping a level and wiping out posted liquidity as the stock moves. The persistent orders you are seeing are just that: some trader has posted orders at these levels, and there is simply no liquidity between the posted orders and the top that has just been wiped out.

There's nothing strange going on here. A stock like AAPL does not have a dense book. If you were to look at the price levels, you'll see quite a few gaps, even on traditional maker/taker venues. Consider for a moment that a 0.01 minimum tick increment on a 600 dollar stock means every penny is worth a mere 0.16 bps!

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