- How is the the order book reconstructed?
You can find a stylized illustration of the order book reconstruction mechanism from the raw message data to the LOBSTER output here. For more technical background on the entire platform please refer to the technical report.
- How is the limit order book initialized?
LOBSTER initializes the reconstruction of the limit order book with an empty order book each morning when the first limit order is submitted. This process guarantees that the order pool, on which LOBSTER's output is based, contains all information provided throughout the day. There are, for example, no executions of orders that were not submitted earlier the same day.
- How many levels are considered in the order book reconstruction?
For every request, independent of the number of levels, the entire order book evolution is reconstructed. The restriction to a specific number of levels concerns only the output file, the underlying order book dynamic is not affected by the input. The same argument holds for the restriction on the regular trading hours.
- How does LOBSTER process broken trades?
When an execution is found to be "clearly erroneous", NASDAQ may break the trade (see NASDAQ's Clearly Erroneous Policy). Since broken trades cannot be reinstated, there is no impact on the current order book. As recommended by NASDAQ, LOBSTER ignores these messages in the reconstruction of the limit order book.
- How does LOBSTER deal with cross session trades?
A cross session trade occurs at the opening and closing of trading as well as after some trading halts. The cross trade message includes aggregated information on limit order executions which have already been accounted for by LOBSTER's order book reconstruction algorithm. The cross trade messages are, therefore, in principle ignorable.Since the messages during the cross session trading are, however, error-prone LOBSTER uses the cross session trading messages to check the correctness of the state of the limit order book. Using the price referenced in the cross session trade message the order book is cleaned. Levels with ask (bid) prices lower (higher) than the crossing price are removed since they should have been executed.
- What happens with other messages?
Beyond the usual limit order activities - submissions, cancellations, deletions and executions - NASDAQ's Historical TotalView-ITCH files contain other messages such as, for example, a net order imbalances indicator. These messages are ignored and skipped by the limit order book reconstruction algorithm, since they do not affect the evolution of the limit order book.Be assured, all limit order submissions, cancellations, deletions and executions (visible and hidden) are, of course, identified by their corresponding event types and correctly presented in the limit order book output.