Quote Stuffing

Definition

The term quote stuffing refers to the practice of placing and canceling a relatively high number of orders for a security in an attempt to manipulate the market.  High-frequency trading programs, and direct links to the exchange, make this tactic possible.

Explanation

By placing and immediately canceling a large number of buy or sell orders for securities, it's possible for high-frequency traders (HFT) to engage in market manipulation.  When the market is flooded by orders, the computer systems used by competitors are forced to analyze an enormous volume of information.  For example, quote stuffing can occur at a rate in excess of 10,000 transactions per second.

The ability to quote stuff is limited to market makers and other large institutions, since the volume of transactions needed requires a direct feed to the exchange.  Quote stuffing can occur at a rate that exceeds the capacity of the market's data lines; thereby temporarily filling an electronic order queue.  Once successfully executed, an algorithmic trader can take advantage of the resulting delay in posting the price quotes for securities.

Related Terms

high frequency trading, Super Display Bookmixed lot ordersSuperDOT, Automated Order System, statistical arbitrage, quantitative trading, market arbitrage, flash trading