How Slow Is the NBBO? A Comparison with Direct Exchange Feeds

This paper provides evidence on the benefits of faster proprietary data feeds from stock exchanges over the regulated ''public consolidated data feeds. We measure and compare the National Best Bid and Offer (NBBO) prices in each data feed at the same data center. Price dislocations between the NBBOs occur several times a second in very active stocks and typically last one to two milliseconds. The short duration of dislocations makes their costs small for investors who trade infrequently, while the frequency of the dislocations makes them costly for frequent traders. Higher security price and days with high trading volume and volatility are associated with dislocations.