The rise of the high-speed trading bots and "quote spam" AUG 08 2012
Technology Review has an animated GIF originally posted by Nanex Research that shows the activity generated by trading bots on US exchanges. It's pretty quiet for a couple years and then starts going nuts.
Algorithmic trading lets financial firms to spot and exploit market patterns at lightning speeds. This can bring a tidy profit, but it also puts computers in charge of making decisions that can cost a company millions, and that may have an unpredictable effect on the rest of the market.
If I'm reading the original source correctly, it seems like the vast majority of the activity is not trades but quotes -- Nanex calls it "quote spam". Basically the bots are asking for prices on stocks/options/etc. over and over again, looking for price advantages that they can then exploit via trades. The quote spam is swamping the communications systems:
Quote spam has exploded with no signs of stopping, while trade frequency has stalled and is actually lower than it was years ago. Each day is plotted in a separate color over the course of a trading day (9:30 to 16:00 Eastern): older data uses colors towards the violet end of the spectrum, recent data towards the red end of the spectrum. The gaps you see between color groups on the quote chart (left-side) is when system capacity was upgraded to handle the increase in traffic, and quote spam jumped to fill the new capacity that very same day.
Update: Quote spam is not about asking for prices, it's about sending out millions of buy/sell offers hoping for a small percentage to reply...just like email spam. (thx, @falfa)