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I am reading a paper for my bachelor thesis, Queuing Uncertainty in Limit Order Market by Bart Zhou Yueshen who is the new AP at INSEAD.

In the abstract, the author said: "Flickering orders manifest in equilibrium: Book depth first overshoots and then immediately reverts to the stable level."

I am new to the market microstructure and low latency trading.

Could someone explain to me what a flickering order is?

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A "flickering" order is one which is repeatedly submitted and cancelled (whether it's at the top of book or not).

The answer from @chollida mentions that "the goal typically is to either slow down competitors quotes by flooding the gateway interface with noise" but I don't think that's necessarily true.

Rather, I think many flickering quotes are caused by an unintended feedback mechanism - the trader submits an order, thereby changing the displayed order book. Their model processes the new book and tells them to cancel the order, which they do. Now the book looks the same as it did previously, and their model tells them to submit a new order, etc etc.

The solutions are typically -

  1. Hard-coded rules to not repeatedly submit and cancel orders in a short period of time, or
  2. Filtering the order book so that your model does not process your own orders.

Not all firms do either of (1) or (2) and so they will accidentally quote flicker from time to time.

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I couldn't find the paper linked but typically "flickering" an order, is a special case of quote stuffing where the trader either puts out and cancels an order as fast as they can or CFO/modifies an order up and down by a penny when it is outside of the top of book quote.

The goal typically is to either slow down competitors quotes by flooding the gateway interface with noise from the constant quote changes that don't really affect the top of book quote.

This is typically considered a separate case from order spoofing where the user shows a large order on one side of the quote, that they have no intention of being filled, in an attempt to make people think the likely next tick is away from that side.

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  • $\begingroup$ Do you know any examples when "quote stuffing" was clearly established, and/or a firm (say, in US equities) was fined for it? I often see it as a speculative argument against HFT, but never saw any reasonable confirmation to it. I think, the second case you mention is much more likely. Another possible case could be a software glitch. $\endgroup$
    – LazyCat
    Apr 15, 2016 at 16:01
  • $\begingroup$ Thank you for your prompt answer! I have edited my question and added the paper. $\endgroup$
    – Jason
    Apr 16, 2016 at 6:59
  • $\begingroup$ It seems that traders will flicker orders when they know that they are not at the top of book quote and they want to flood the gateway interface so that competitors' quote will be delayed. Is that right? $\endgroup$
    – Jason
    Apr 16, 2016 at 7:26
  • $\begingroup$ But I still do not know what is the meaning of "with noise from the constant quote changes that don't really affect the top of book quote". $\endgroup$
    – Jason
    Apr 16, 2016 at 7:27
  • $\begingroup$ @KylinYi flickering bid below the best bid, or flickering offer above the best offer would not affect the top of book - which is the best bid and best offer. However flickering forces the exchange to process these "extra messages" and send out those quotes to other firms, who in turn have to process those as well. So it creates extra work for competition. $\endgroup$
    – onlyvix.blogspot.com
    Apr 16, 2016 at 19:02

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