Fragmentation and inefficiencies in US equity markets: Evidence from the Dow 30.

Using the most comprehensive source of commercially available data on the US National Market System, we analyze all quotes and trades associated with Dow 30 stocks in 2016 from the vantage point of a single and fixed frame of reference. Contrary to prevailing academic and popular opinion, we find that inefficiencies created in part by the fragmentation of the equity marketplace are widespread and potentially generate substantial profit for agents with superior market access. Information feeds reported different prices for the same equity---violating the commonly-supposed economic behavior of a unified price for an indistinguishable product---more than 120 million times, with "actionable" latency arbitrage opportunities totaling almost 64 million. During this period, roughly 22% of all trades occurred while the SIP and aggregated direct feeds were dislocated. The current market configuration resulted in a realized opportunity cost totaling over $160 million when compared with a single feed, single exchange alternative---a conservative estimate that does not take into account intra-day offsetting events.