I'm reading a 2008 JoFMarkets paper by Shkilko et al. with title "Locked and crossed markets on NASDAQ and the NYSE" in which the authors investigate the determinants of locked and crossed markets. Their data is 3 months (October to December 2003) of quoting and trading (from TAQ database) for 100 NYSE and NASDAQ stocks.

In the paper the authors talk about "autoquotes", certain 100 share size limit orders that "... inter-market participants are not required to honor and can trade through them, as they are likely to be placeholder (non-economic) quotes."

Can anyone clarify what are these limit orders and whether they still "exist" in today's equity markets?

  • That sounds like pre-Reg-NMS stuff, I am almost (but not quite) certain that quotes like that are now protected, and must be traded through. I wonder why, in 2008, people were still writing about locked markets in 2003... 2005 was when Rule 611 came into effect, I think... – experquisite Jun 14 '15 at 4:57

Quote: Starting in 2003, the NYSE started disseminating automatically, with a software called autoquote, any change in the best quotes in its listed stocks. Before that specialists had to update manually new inside quotes in the LOB. This implementation considerably accelerated the speed at which algorithmic traders receive information Endquote

Source: Market Microstructure: Confronting many viewpoints, book by Abergel and others, Published by Wiley (2012)

So it sounds to me like an early step in the automation of trading and the transition away from a manual "specialist" and is probably of historical interest only at this point. But I am not sure.

  • 1
    So, what are these 100 share limit orders called "autoquotes" and do they still exist? – g_puffo Jun 14 '15 at 1:01

Autoquotes help execution of Reg NMS by making sure best quotes are automatically disseminated on each exchange after a change in the best price on the connected exchanges. (Some exchanges are still not connected completely, leading to the Facebook IPO fracas )

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