Execution Quality Definitions

Quoted Spread

Quoted spread is measured by using displayed quotations from the consolidated tape. Bats records all market center Best Bid and Offer (BBO) values, as well as the National Market Best Bid and Offer (NBBO), every millisecond. For reporting purposes, a market center's quoted spread is calculated by taking each market center's current best offer and subtracting that market center's current best bid, and then averaging those values for the day. Quotations with a size or price of zero are ignored. The NBBO quoted spread is calculated using the difference between the National Best Offer and the National Best Bid.

Example

Bats BBO: 10.01 X 10.02

Bats Quoted Spread for this instant = $0.01

Effective Spread

Effective spread is designed to measure marketable orders executed in relation to the market center's quoted spread and takes into account hidden and midpoint liquidity available at each market center. Effective Spread is calculated by using eligible trade prices recorded to the consolidated tape and comparing those trade prices to the National Best Bid and Offer "NBBO" at the time of the execution.

For purposes of calculating the effective spread on executed marketable orders, Bats measures the execution price against the NBBO in effect at the millisecond in which the execution occurs. This methodology differs from Rule 605's calculation of effective spread, which measures the execution price against the NBBO at the time of receipt of the marketable order, as measured to the second.

The lower the effective spread, the more volume a market center executes at prices near the midpoint of the NBBO, or with price improvement. Effective spread is designed to measure a round trip trade and thus is calculated by taking double the absolute value of the difference between the trade price and the midpoint of the NBBO at the time of each execution. The data is then volume-weighted to arrive at each market center's effective spread for the day.

The effective spread statistics Bats provides on its website are designed to supplement our Rule 605 reports.

NBBO Spread ($) = |Trade Price – Midpoint of NBBO| x 2

NBBO Spread Value ($shares) = NBBO Spread x Shares Executed

Effective Spread ($) = Sum of all NBBO Spread Values / Total Shares Executed

Example

NBBO: 10.00 x 10.01

Bats executes 1,000 shares at 10.005 and 2,000 shares at 10.01 for the day. NBBO is 10.00 x 10.01 for both executions.

Bats Effective Spread = $0.0067

Rankings

In the market quality web charts, market centers are ranked in order from lowest to highest effective spread. These rankings reflect the average effective spread for executions occurring in the previous trading month, rounded to five decimal places. In the event of a "tie," where two or more market centers have the same average effective spread, market centers are sorted alphabetically by name.

Effective spread values for executions reported via the TRF are included below the red line in the individual symbol charts. The TRF is not considered in the effective spread rankings.

Effective/Quoted Spread Ratio (E/Q)

Effective/quoted spread ratio is calculated by dividing a market center's effective spread by the NBBO quoted spread. The resulting ratio, also referred to as E/Q, is a very useful measurement as it allows the effective spread of a market center to be compared to the industry NBBO. E/Q also measures the overall average amount and quality of price improvement provided by a market center.

Example

An E/Q of 0.60 indicates that on average this market center's effective spread is 40% tighter than the NBBO quoted spread.

Price Improvement / Share

Price improvement per share provides the average amount of price improvement in dollars per eligible share executed at each market center. Price improvement per share is determined by calculating the difference between the trade price and the NBBO (NBO for buys and NBB for sells) for each execution to arrive at a net price improvement value for each trade. All net price improvement values are then volume averaged to arrive at the price improvement per eligible share for each market center. Negative price improvement values are possible when trades occur outside of the NBBO, which usually results from a slow quote update. Higher price improvement per share values are better than low, or negative, price improvement per share values.

Minimum Price Variation

The minimum price variation "MPV" is calculated by dividing the minimum tick size by the average trade price. For Regulation NMS Securities, the minimum tick size is $0.01 for stocks that trade at or above $1.00 per share. For NMS stocks below $1.00 per share, the minimum tick size is $0.0001.

NBBO

The National Best Bid and Offer is the best (highest) bid and best (lowest) offer displayed by any market center quoting a specific security to the consolidated tape.

Spread Leeway

The quoted spread divided by the minimum price variation, less one. "N/A" signifies that a market center has no quoted spread for the day in the given symbol.

Average Trade Price

The total notional value divided by the total volume. Total notional is determined by calculating the sum of the trade price times the shares executed for each execution reported.

Tape Volume (Market Center)

Total volume by market center reported to the Consolidated Tape.

Tape Volume (All Market Centers)

Total volume reported to the Consolidated Tape.

Percentage Spread

Percentage Spread is calculated by dividing a market center's quoted spread by the midpoint of the market center's BBO at that instant, and then averaging those values for the day.

Example

Bats quoted spread: $0.02

Bats BBO midpoint: 10.01

% spread for this instant = 0.20%

Quoted Depth (shares)

Quoted depth in shares is measured by using displayed quotations from the consolidated tape. Bats records the number of shares displayed at each market center's Best Bid and Offer (BBO) every millisecond. For reporting purposes, a market center's quoted depth is calculated by time weighting the number of shares displayed at each market center's best price, conditional on the market center having a two sided quote.

Example

Bats has a two sided quote for 1000 milliseconds in the regular trading day.

The total size displayed at the market center's bid was: 100 for 200 milliseconds, 1500 for 300 milliseconds, and 600 for 500 milliseconds. The market center's average bid size was 770.

The total size displayed at the market center's offer was: 200 for 300 milliseconds, 1700 for 400 milliseconds, and 500 for 300 milliseconds. The average offer size was 890.

Bats quoted depth shares = (770 + 890)/2 = 830

Quoted Depth ($)

A market center's quoted depth is calculated by time weighting the number of dollars displayed at each market center's best price, conditional on the market center having a two sided quote.

Example

Bats is has a two sided quote for 1000 milliseconds in the regular trading day.

The market center's bid was: 100 shares at 10.01 for 200 milliseconds, 1500 shares at 10.02 for 300 milliseconds, and 600 shares at 10.01 for 500 milliseconds. The total number of dollars displayed was: 1001 for 200 milliseconds, 15030 for 300 milliseconds, and 6006 for 500 milliseconds. Average number of dollars displayed at the market center's bid was 7712.2.

The market center's offer was: 200 at 10.03 for 300 milliseconds, 1700 at 10.04 for 400 milliseconds, and 500 at 10.05 for 300 milliseconds. The total number of dollars displayed was: 2006 for 300 milliseconds, 17068 for 400 milliseconds, and 5025 for 300 milliseconds. Average number of dollars displayed at the market center's offer was 8936.5.

Bats quoted depth dollars = (7712.2 + 8936.5)/2 = 8324.35

Consolidated Volume

Total volume reported to the Consolidated Tape.

Market Share

Market share represents the percentage of total volume executed by each market center. Market share is calculated by dividing a market center's tape volume by the consolidated volume.

Average NBB (NBO) Size

The average NBB (NBO) size is the average size of the displayed bid (offer) on each market center's at the NBB (NBO). A market center's average NBB (NBO) size is calculated by time weighting the number of shares displayed at the NBB (NBO).

Example

Bats is at the NBB (NBO) for 1000 milliseconds in the regular trading day.

The total size Bats displayed at the NBB (NBO) was: 100 for 200 milliseconds, 1500 for 300 milliseconds, and 600 for 500 milliseconds. The average NBB (NBO) size was 770.

Average Time at NBB (NBO)

The average time at NBB (NBO) is the average amount of time, displayed in "hh:mm:ss" that each market center is at the NBB (NBO) during the regular trading hours.

Average Percentage of Time at NBB (NBO)

The average percentage of time at NBB (NBO) is the average percentage of time that each exchange is at the NBB (NBO) during the regular trading hours. The average percentage of time at NBB (NBO) is calculated by dividing the length of time that the market center's most aggressive displayed bid (offer) is at the NBB (NBO), counted in milliseconds, by the total milliseconds in Regular Trading Hours.

Average Time at the Inside

The average time at the inside is the average of the amount of time that each market center's most aggressive displayed bid is at the NBBO and the amount of time that each market center's most aggressive displayed ask is at the NBBO, displayed in "hh:mm"ss".

Average Percentage of Time at the Inside

The average percentage of time at the inside is calculated by dividing the average of the amount of time that each market center's most aggressive displayed bid is at the NBBO and the amount of time that each market center's most aggressive displayed ask is at the NBBO, by the total milliseconds in Regular Trading Hours.

Average Time at the NBB and NBO

The average time at the NBB and NBO is the average amount of time, displayed in "hh:mm:ss", that each market center's most aggressive displayed bid and offer is at the NBBO.

Average Percentage of Time at the NBB and NBO

The average percentage of time at the NBB and NBO is the average percentage of time that each market center's most aggressive displayed bid and offer is at the NBBO. The percentage of time at the NBB and NBO is calculated by dividing length of time that the market center's most aggressive displayed bid and offer is at the NBBO, counted in milliseconds, by the total milliseconds in Regular Trading Hours.

Average Time at the NBB or NBO

The average time at the NBB or NBO is the average amount of time, displayed in "hh:mm:ss", that each market center's most aggressive displayed bid or offer is at the NBB or NBO excluding the length of time the market center is at the NBB and NBO. The average time at the NBB or NBO is the average of the sum of the time at NBB and the time at NBO.

Average Percentage of Time at the NBB or NBO

The average percentage of time at the NBB or NBO is the average percentage of time that each market center's most aggressive displayed bid or offer is at the NBB or NBO. The percentage time at the NBB or NBO is the average of the sum of the NBB and the time at NBO, measured in milliseconds excluding the length of time the market center is at the NBB and NBO, divided by the total milliseconds in Regular Trading Hours.

Eligible Shares

The shares used for each market center in the calculation of Price Improvement per Share and Effective Spread. A number of assumptions are made in order to determine which transactions are eligible for inclusion in these metrics. Specifically,

  • Trades that occur above the midpoint of the NBBO are assumed to be buys
  • Trades that occur at or below the midpoint of the NBBO are assumed to be sells
  • Opening and Closing Auction trades are not included (CTA and UTP sale condition of ‘O’ or ‘6’)
  • Trades that are marked as trade through exempt and occur outside the NBBO are not included
  • Trades that occur when the NBBO is locked or crossed, or is undefined are not included
  • Trades that occur at a price more than 10% outside the NBBO spread are assumed to be erroneous and are not included
  • Trades that are marked as cancels or corrections are not included
  • Trades that are not last sale eligible are not included (see note below)

In addition to other criteria noted above, trades will not be included in the effective spread calculations or in the price improvement calculations if they are not last sale eligible. The following rules are applied to transactions from the Consolidated Tape to determine which trades are last sale eligible:

CTA – Consolidated Tape Authority

The SIP-provided “Consolidated High/Low/Last Price Indicator” on each long and short trade record will be used to determine whether or not the trade is last sale eligible. Trades will be included if the value is any of “D”, “E”, “F”, or “G” per section 11.10 of the CTS Output Specification, Rev 66, June 27, 2012.

UTP – Unlisted Trading Privileges

The SIP-provided “Consolidated Price Change Indicator” on each long and short trade record will be used to determine whether or not the trade is last sale eligible. Trades will be included if the value is any of “1”, “3”, “5” or “7” per section 6.0 of the UTDF Specification, Version 13.0b, August 27, 2012.

SEC Rule 605 FAQ's and Adoption release:

All metrics are dependent on the integrity of the data received from the Consolidated Tape. Internal or external issues that result in dropped messages could affect the results.

The S&P 500 constituent list is available on the public web site below and is not guaranteed to be complete on any given day: http://us.spindices.com/indices/equity/sp-500