Q) Some stocks (for example PALM at 2000/03/02) have the National Best Offer Price smaller than the National Best Bid Price. Also, some of the trades happened outside the bid-ask range. Is this possible or is it a data problem? How should I handle this?
A) NBBO calculations need to make some assumptions in joining Trade and Quote data (such as an assumed 5 second delay in recording prices in what is know as the Lee & Ready algorithm), and these are not always right or consistent with reality over time.
Refer to our "Using TAQ Data Efficiently" for more information on how to derive NBBO and how to test the locking and the crossing, and outside trades.
Also the data has incorrect entries for sure, g iven the very large number of entries. Sometimes traders and market makers simply make mistakes and these are next to impossible to separate from simple data entry errors.
Hence any NBBO algorithm has an element of crudeness, including the one that we use. We caution anyone that uses TAQ data to look for outliers and problems in their specific sample of data and to try different 'clean up' routines.
In the case of PALM, trade-reporting delays are most likely the problem, as varying delays are more likely when both trading volume and the volatility of the stock price is high. Also, some of the smaller markets may be out of sync and irrelevant at these times, and the NBBO formula has no way to determine when this is so.
In sum, there is no one-size-fits-all answer to the problem of using TAQ to determining actual bid-ask quote spreads and how trades interact with quotes.
March 2, 2000 was the IPO date for PALM, and perhaps the price exhibited substantial volatility during that date, which makes matching trades and quotes accurately a very daunting task.
On such dates these things can happen -- bids outrunning offers as the trading price explodes. Below is the raw quote data. Most likely this is a case where the brokers making the quotes let the offer quotes become stale because they had no new offers to work with-- everyone was quoting to buy.
Note I oiginally misread the date you gave and used FEB 2003 (CQ0203). Changing my program to usee CQ0003 for 2003 will show you the problem with offers as will a web query of Quote data for PALM.
In the end, cases where spread < 0 and price rising means the offer is not valid. If the is price falling, bid may be invalid. In either case, I would consider through away any time period where most spreads were negative, or treat these periods as different. Also, IPO dates are different.
And we will consider such a flag in our next versions of NBBO algorithms.
bid ofr spread
PALM 02MAR2000 11:30:00 160.000 145.000 -15.0000 0 100 2 12 T
PALM 02MAR2000 11:30:03 160.000 150.000 -10.0000 0 100 2 12 T
PALM 02MAR2000 11:30:05 160.000 150.000 -10.0000 0 98 2 12 T
PALM 02MAR2000 11:30:06 160.000 150.000 -10.0000 0 98 1 12 T
PALM 02MAR2000 11:30:11 160.000 150.000 -10.0000 0 97 1 12 T
PALM 02MAR2000 11:30:11 160.000 150.000 -10.0000 0 97 2 12 T
PALM 02MAR2000 11:30:18 160.000 150.000 -10.0000 0 95 2 12 T
PALM 02MAR2000 11:30:24 160.000 150.000 -10.0000 0 93 2 12 T
PALM 02MAR2000 11:30:30 160.000 150.000 -10.0000 0 91 2 12 T
PALM 02MAR2000 11:30:33 165.000 150.000 -15.0000 0 100 2 12 T
PALM 02MAR2000 11:30:36 165.000 150.000 -15.0000 0 98 2 12 T
PALM 02MAR2000 11:30:42 165.000 150.000 -15.0000 0 96 2 12 T
PALM 02MAR2000 11:30:48 165.000 150.000 -15.0000 0 94 2 12 T
PALM 02MAR2000 11:30:54 165.000 150.000 -15.0000 0 92 2 12 T
PALM 02MAR2000 11:30:58 156.875 150.000 -6.8750 0 1 2 12 T
PALM 02MAR2000 11:31:00 156.750 150.000 -6.7500 0 2 2 12 T
PALM 02MAR2000 11:31:02 156.750 150.000 -6.7500 0 1 2 12 T
PALM 02MAR2000 11:31:05 150.000 145.000 -5.0000 0 99 2 12 T
PALM 02MAR2000 11:31:10 150.000 145.000 -5.0000 0 97 2 12 T
PALM 02MAR2000 11:31:16 150.000 145.000 -5.0000 0 95 2 12 T
PALM 02MAR2000 11:31:18 146.000 145.000 -1.0000 0 1 2 12 T
PALM 02MAR2000 11:31:22 146.000 140.000 -6.0000 0 1 2 12 T
PALM 02MAR2000 11:31:24 145.000 140.000 -5.0000 0 100 2 12 T
PALM 02MAR2000 11:31:26 145.000 140.000 -5.0000 0 98 2 12 T
PALM 02MAR2000 11:31:32 145.000 140.000 -5.0000 0 96 2 12 T
PALM 02MAR2000 11:31:36 145.000 140.000 -5.0000 0 96 1 12 T
PALM 02MAR2000 11:31:38 145.000 140.000 -5.0000 0 94 1 12 T
PALM 02MAR2000 11:31:38 147.000 140.000 -7.0000 0 1 1 12 T
PALM 02MAR2000 11:31:40 147.000 140.000 -7.0000 0 2 1 12 T
PALM 02MAR2000 11:31:45 147.000 140.000 -7.0000 0 2 2 12 T
PALM 02MAR2000 11:31:45 147.000 140.000 -7.0000 0 1 2 12 T
PALM 02MAR2000 11:31:52 145.000 140.000 -5.0000 0 1 2 12 T
PALM 02MAR2000 11:31:54 145.000 140.000 -5.0000 0 2 2 12 T
PALM 02MAR2000 11:32:04 145.000 139.000 -6.0000 0 2 1 12 T
PALM 02MAR2000 11:32:12 145.000 138.000 -7.0000 0 2 2 12 T
PALM 02MAR2000 11:32:12 140.000 138.000 -2.0000 0 1 2 12 T
PALM 02MAR2000 11:32:14 140.000 138.000 -2.0000 0 1 1 12 T
PALM 02MAR2000 11:32:15 140.000 138.000 -2.0000 0 2 1 12 T
PALM 02MAR2000 11:32:20 140.000 138.000 -2.0000 0 1 1 12 T
PALM 02MAR2000 11:32:27 140.000 139.000 -1.0000 0 1 2 12 T
PALM 02MAR2000 11:32:27 140.000 139.000 -1.0000 0 2 2 12 T
PALM 02MAR2000 11:32:31 140.000 138.000 -2.0000 0 2 2 12 T
PALM 02MAR2000 11:32:36 139.000 138.000 -1.0000 0 1 2 12 T
PALM 02MAR2000 11:32:37 139.000 138.000 -1.0000 0 1 1 12 T
PALM 02MAR2000 11:32:38 139.000 138.000 -1.0000 0 2 1 12 T
PALM 02MAR2000 11:32:43 139.000 138.000 -1.0000 0 2 2 12 T
PALM 02MAR2000 11:32:44 140.125 138.000 -2.1250 0 1 2 12 T
PALM 02MAR2000 11:32:45 140.125 137.000 -3.1250 0 1 2 12 T
PALM 02MAR2000 11:32:49 138.125 137.000 -1.1250 0 1 2 12 T
PALM 02MAR2000 11:32:52 139.000 138.000 -1.0000 0 2 2 12 T
PALM 02MAR2000 11:33:06 140.000 137.313 -2.6875 0 1 30 12 T
PALM 02MAR2000 11:33:10 140.000 137.625 -2.3750 0 2 30 12 T
PALM 02MAR2000 11:33:11 140.000 136.938 -3.0625 0 2 30 12 T
PALM 02MAR2000 11:33:15 140.000 138.000 -2.0000 0 2 2 12 T
PALM 02MAR2000 11:33:29 140.000 138.000 -2.0000 0 2 1 12 T
PALM 02MAR2000 11:33:30 140.000 138.000 -2.0000 0 1 1 12 T
PALM 02MAR2000 11:33:35 140.000 138.000 -2.0000 0 1 2 12 T
PALM 02MAR2000 11:33:37 140.000 138.000 -2.0000 0 2 2 12 T
PALM 02MAR2000 11:33:38 140.000 139.000 -1.0000 0 2 2 12 T
PALM 02MAR2000 11:33:43 140.000 139.125 -0.8750 0 2 1 12 T
PALM 02MAR2000 11:33:47 140.000 139.875 -0.1250 0 2 1 12 T
PALM 02MAR2000 11:33:49 140.000 139.875 -0.1250 0 2 2 12 T
PALM 02MAR2000 11:34:06 140.125 140.063 -0.0625 0 2 20 12 T
PALM 02MAR2000 11:34:06 140.188 140.063 -0.1250 0 2 20 12 T
PALM 02MAR2000 11:34:08 141.000 140.063 -0.9375 0 1 20 12 T
PALM 02MAR2000 11:34:22 141.000 140.063 -0.9375 0 2 20 12 T
PALM 02MAR2000 11:34:27 140.500 140.063 -0.4375 0 1 524 12 T
PALM 02MAR2000 11:34:30 140.500 140.063 -0.4375 0 2 524 12 T
PALM 02MAR2000 11:35:45 139.000 138.000 -1.0000 0 1 2 12 T
PALM 02MAR2000 11:35:46 139.000 138.000 -1.0000 0 2 2 12 T
PALM 02MAR2000 11:35:47 139.000 138.000 -1.0000 0 2 1 12 T
PALM 02MAR2000 11:35:48 139.000 138.000 -1.0000 0 1 1 12 T
PALM 02MAR2000 11:35:52 139.000 138.000 -1.0000 0 2 1 12 T
PALM 02MAR2000 11:35:55 139.000 138.000 -1.0000 0 1 1 12 T
PALM 02MAR2000 11:35:55 139.000 138.000 -1.0000 0 1 51 12 T
PALM 02MAR2000 11:36:18 137.000 136.063 -0.9375 0 10 116 12 T
PALM 02MAR2000 11:36:19 137.000 136.063 -0.9375 0 8 473 12 T
PALM 02MAR2000 11:36:49 135.000 134.938 -0.0625 0 1 20 12 T
PALM 02MAR2000 11:36:50 135.000 134.938 -0.0625 0 1 87 12 T
PALM 02MAR2000 11:36:57 134.875 134.500 -0.3750 0 1 1 12 T
PALM 02MAR2000 11:36:58 134.750 134.500 -0.2500 0 2 1 12 T
PALM 02MAR2000 11:38:33 128.938 128.063 -0.8750 0 1 997 12 T
PALM 02MAR2000 11:38:34 128.938 128.063 -0.8750 0 2 997 12 T
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