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I am trying to find out if exchanges impose limits on the total number of orders which can be in an order book at any one time.

Does anyone know of examples of these order book size limit policies. If they exist how are orders which violate that limit handled? Do they ignore new orders, or evict orders from the book based on price/time?

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I am not aware on any rules preventing a too high number of entries at a limit price. Nevertheless you usually have controls for each trader id. A trader cannot have too many orders in the book or send them at a too high frequency.

[EDIT] Moreover, on most trading platforms you cannot have orders too far away from the mid (or a reference price like the previous close). See for instance the 2014Q4 convergex traders guide p4

Hong Kong, for instance, will reject a limit order that is more than 24 ticks away from the current bid or offer. During its pre-opening period, Tel Aviv will not allow a limit order that is more than 35% from the previous day's closing price. In the US, NYSE Arca uses percentage price checks:

• If the price is USD 0.01-25.00, your order must be within 10% of the price.

• If the price is USD 25.01-50.00, your order must be within 5% of the price.

• If the price is higher than USD 50.00, your order must be within 3% of the price.

It more or less controls the number of orders in the book.

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  • $\begingroup$ I was asking more about total order book size, rather than size at a limit price. $\endgroup$ – Francis Stephens Oct 12 '15 at 21:26
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No, there is no limit. You could have millions of bids and asks at the same price. Think about very liquid stocks, there are very many orders at the same price.

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  • $\begingroup$ In practice there must be some limit. A computer has finite memory. The constraints from the machine appear to be or little practical importance. Have you personally observed order books with millions of bids and asks at the same price? That is much higher than observed sizes given by other people I have spoken to. $\endgroup$ – Francis Stephens Oct 17 '15 at 21:45

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