How IEX’s Crumbling Quote Indicator Measures Quote Instability
Summary
The document describes the Quote Instability Factor used by IEX’s Crumbling Quote Indicator, which informs the D-Limit order type. It presents the factor as a logistic transformation of a weighted combination of hard-coded variables. Those inputs describe current and recent order-book conditions on other exchanges, including whether venues have moved away from the near side of the national best bid or offer. The coefficients are periodically updated through regulatory filings.
The answer’s practical explanation is that the factor rises when other venues move away from the best quote, signaling quote instability. It points to the IEX rule book for the formal calculation and names one input that tracks venue movements over a short recent interval. The document does not explain the model’s training process, how order-level explanations are communicated to customers, or whether the legal challenge’s liquidity claims are justified; it therefore provides only a partial account of the questions raised.
Key ideas
- IEX’s Crumbling Quote Indicator uses a Quote Instability Factor based on a logistic function of weighted inputs.
- The inputs describe current and recent order-book conditions on other exchanges.
- The factor tends to be high when other venues move away from the national best quote.
- The model coefficients are hard-coded and updated periodically through regulatory filings.
- The document does not detail model training, customer explanations, or the merits of the legal challenge.
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# D-Limit and Crumbling Quote Indicator
# D-Limit and Crumbling Quote Indicator
I've been following the development of the D-Limit order at IEX for some time. In the last couple of days I see the SEC has been sued by Citadel Securities for approving this order type.
Can anyone explain to me how the Crumbling Quote Indicator they use works - particularly the machine learning/AI component, and how they will be able to give their customers enough information about why their orders have/have not been executed during these periods?
As for the legal case, the claim is that this will harm market participants and damage liquidity - is this a reasonable claim?
## Answer by Sergei Rodionov (score 1, accepted)
https://quant.stackexchange.com/a/61715
The calculation is described in the IEX Rule Book, section 11.160 (g). See Quote Instability Factor (QFI) and the accompanying thresholds:
$$ QIF = \frac{1}{1+e^{-x}}$$
where $$x = C_0 + C_1N + C_2F + C_3NC + C_4FC + C_5EPos+C_6ENeg+C_7 EPosPrev+C_8ENegPrev + C_9Delta$$
The coefficients $C_n$ are hard-coded and are updated once in a while with a corresponding SEC filing. The variables refer to the current and historical (1ms prior) order book state on other exchanges. For example:
> (9) $Delta$ = the number of these three (3) venues that moved away from the near side of the market on the same side of the market and were at the same price at any point since one (1) millisecond ago or the most recent PBBO change on the near side, whichever happened more recently: XNGS, EDGX, BATS.
In a nutshell, $QIF$ is high when other venues are departing the NBBO.
More details are available in the Evolution of the Crumbling Quote Signal on SSRN.Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.