This activity is proven in a number of markets.
Christie and Schultz (1994) document an absence of odd-eighth quotes for Nasdaq stocks. Christie et al. (1994) find a significant drop in spreads following the disclosure of the findings of Christie and Schultz (1994). Dutta and Madhavan (1997) provide a theoretical model of a dealer market and demonstrate conditions under which implicit collusion is sustainable. Barclay (1996) finds that stocks that trade with spreads of a quarter point on Nasdaq subsequently trade with spreads of an eighth of a point after they list on exchanges. Huang and Stoll (1996) document significantly higher bid-ask spreads for Nasdaq stocks than for comparable exchange stocks. However, Chan and Lakonishok (1997) find little difference in trade costs between Nasdaq and exchange stocks for a sample of institutional traders. See also Blume and Goldstein (1992), Fama et al. (1993), Shapiro (1993), Christie and Huang (1994), and Chan et al. (1995) for additional evidence on the returns and costs of trading Nasdaq stocks.
2. Due to Latency Arbitrage, an HFT computer knows that there is an order that in a moment will move the NBBO quote higher, to $25.54 bid /offered at $25.56.
3. The HFT speeds ahead, scraping dark and visible pools, buying all available ABC shares at $25.54 and
4. The institutional algo gets nothing done at $25.54 (as there is no stock available at this price) and the market moves up to $25.54 bid / offered at $25.56 (as anticipated by the HFT).
5. The HFT turns around and offers ABC at $25.55 or $25.56.
6. Because it is following a volume driven formula, the institutional algo is forced to buy available shares from the HFT at $25.55 or $25.56.
7. The HFT makes $0.01-$0.02 per share at the expense of the institution.
Guess who has clearing and execution about 30 meters outside the NYSE?
There's already CLOBs and dark liquidity being developed for crypto so without regulations quant and HFT will further dominate. I suppose the main players are Gemini, Coinbase and Finex. However it will be interesting to see what happens once Nasdaq and Bakkt ICE quotes start trading. ICE infra could be the ticket for them. https://ir.theice.com/press/press-releases/all-categories/2012/02-29-2012a
Yeah i'm a bit cynical, feels like the land of the blind, where one eyed is king, bit over the top to shove them in dark pools to . get pilfered..lol..
What are CLOBs?