Latency arbing is a scourge, and makes limit orders practically useless. Quote stuffing, would be illegal if trading were still done on little slips of paper. Imagine dumping 10,000 slips of paper on the trading desk, and then shouting "just kidding!" In the words of Lawrence from Office Space, "You'd get your ass kicked" Or even worse, 10,000 empty bids. That's why people hate HFT.

I'm not trying to be argumentative, but I am curious why you find latency arb so problematic, and what you think it's impact is on limit orders?

I for one think latency arb is one of the bigger net wins for hft. As a market participant, each venue I have to maintain a presence at is a cost to me. I'm willing to pay the latency arb shops their cut to provide me price consistency because for my models it is much cheaper to do so than to continually reevaluate and redeploy to every possible venue. It frees me to shop for venues that provide the best features and fees.

As for quote stuffing, you are absolutely right it is awful. That's why almost every venue out there has taken or is taking steps to curtail it. They did so because their customers agree with you.

> I'm not trying to be argumentative, but I am curious why you find latency arb so problematic

That is a loaded term. "Latency arb" as you described it is HFT keeping all protected exchanges synchronized, and it is a good thing. It means that everyone else can ignore the 13 exchanges, and send their orders to the market with the most competitive pricing for connectivity. "Latency" arb" as described in most literature critical of HFT is the specific practice of submitting and canceling non-bona-fide quotes to an exchange with the intent of slowing down the matching engine. If you can slow down the matching engine that most other participants are using, you can effectively delay the public response your actions on the other 12 exchanges. A trading strategy that operates on the basis of a DoS attack on one exchange is definitely problematic.

What you are describing is quote stuffing. Nearly every participant in HFT/algo trading agrees that it is a problematic practice. Nearly every venue has either enacted or is enacting policies and procedures to either prevent it or severely penalize it, because that is what all of their customers want.

> What you are describing is quote stuffing.

Yes. Sometimes it is referred to as latency arbitrage. Hence why people _nominally_ talking about that subject may, in fact, be talking about different things.

> Nearly every venue has either enacted or is enacting policies and procedures to either prevent it or severely penalize it, because that is what all of their customers want.

Regarding penalties to prevent or penalize it, I disagree. NASDAQ's policy uses a ratio weighted by distance from the top-of-book. There is no penalty for excessive order submit-cancel loops at the top-of-book. Their matching engine also operates in a fashion which specifically encourages cancel/resubmit loops at the top-of-book, in that they accept and subsequently display limit orders at a different price than submitted. If they were serious about preventing quote-stuffing, they could fix this simply by rejecting those orders. Presumably they either don't care (because their system doesn't get bogged down), or there is pressure from some big customers to keep the status quo here.

A) Top of book quote stuffing is a pretty dangerous game to get into. Can't confirm that no one is doing it, but I'd be surprised if it were a big problem. B) NASDAQ is one of the better technology platforms and does not experience as much lag as the others, so it could be as you say, they just don't care. C) the charges away from inside market are only one of several ways NASDAQ discourages excessive quoting. They also have tiered rebate pricing based on quote/fill ratios and PSX has a order rest time requirement.

So I guess if you were a shop that didn't mind playing with fire quoting top of book, and you never actually wanted to market make on NASDAQ, you could still quote stuff them.

I stand by my statement that venues continue to enact penalties to discourage quote stuffing and is such is not nearly the problem people make it out to be.

As a market participant, if the NASDAQ is not providing you with an execution platform to your liking (whether due to laggy matching or anything else) you are free to choose another venue and thanks to latency arb shops you are probably not going to pay much of a price premium to do it.

The biggest problem in all discussions of HFT/algo trading especially when related to internet forums and expose reporting is people using incorrect terms. We don't let people get away with it in other technical settings because it leads to unnecessary strife. I think the same thing applies to electronic trading.

Quote stuffing is differentiated from plain old vanilla latency arbitrage by fact that the purpose of quote stuffing is to cause artificial latency to then take advantage of. IMO one can still make defensible arguments in favor of latency arbitrage when they have invested in faster technology than other market participants. There is certainly no defensible argument for causing the latency and then taking advantage of the problem you caused to extract a profit.

'Quote stuffing' is there, because of absolutely ridiculous SEC rules. If you'd put in fractional prices and remove NBBO rules, there wouldn't be any 'quote stuffing'. And latency arb. What's wrong with latency arb? How else can you move information from one exchange to another fairly?

Think of HFT's as of part of the financial network infrastructure. Where exchanges play role of nodes and HFT companies role of links/queues/buffers.

No worries, I'm specifically talking about the folks that are constantly testing for buys with tiny (and fake) orders and incrementing the ask until they find the limit, then buying all they can, holding for only milliseconds and reselling at the higher price. Queue jumping tricks like that which really add no value.