Market Anomaly: Quote Fade

• "Liquidity Drought" (Oct. 2025): Kaiko shows across several major CEXs that order-book depth vanishes within milliseconds, spreads spike and market makers step back → extreme price impact from small flow (classic quote-fade environment).
• GDAX/Coinbase ETH flash crash (21 Jun 2017): A very large sell triggered cascades (stops/margins); depth collapsed before buying interest could absorb. Coinbase compensated customers; CFTC scrutinised the event. Important: no confirmed misconduct; but it illustrates quote-fade effects.

Context: Quote Fade describes the observed effect (vanishing quotes) - intent or risk control varies by episode. For early detection the signature matters.

1. Visible depth is conditional: Quotes carry adverse-selection risk.
2. Pre-touch area: As market orders or news approach, providers withdraw or shrink quotes on millisecond timescales → depth hole appears.
3. Microstructure effect: Simultaneous reaction of many providers creates a "liquidity mirage"; impact jumps abruptly.

• Pre-touch cancel clusters: An unusually high share of top-of-book quantity is cancelled/modified <100–200 ms before arrival of market-determining orders → fill-to-post ratio collapses.
• Spread jump & short quote lifetime: Best-quote lifetime measured in ms; spreads widen without broad news flow.
• "Much messaging, little execution": High add/replace/cancel activity, few fills at touch → order-to-trade (OTR) rises.

• Fee/rebate structures incentivise aggressive quoting and rapid repositioning.
• Very high API and cancel rates; cancels are often effectively free.
• Fragmentation and 24/7 trading: synchronous withdrawal across venues can shred visible depth.

Research & surveillance: Flickering/quote-fading is microstructurally described (e.g. Baruch/Glosten) and included in surveillance models (SMARTS etc.). Market protections: volatility interruptions, minimum quote durations (venue-specific) and strict reporting - in crypto these measures are inconsistent. The New York Fed has discussed the "Liquidity Mirage" explicitly.

• Trading & risk: Quote Fade increases slippage, reduces execution certainty and amplifies breakouts/stop-runs.
• MiCA & transition: Applicable since 30.12.2024; transition window until 01.07.2026 per member state. Supervisors expect effective monitoring for order/behavioural signatures like quote-fade.

Calibration per symbol/venue vs 30-day baseline (same time of day). Required: L2 (minimum), ideal: L3 events Add/Replace/Cancel/Fill; for multi-venue detection include lead/lag analysis.

E3 (high) – "Pre-Touch-Fade" (strong evidence)

• PTCR: ≥ 80% of displayed quantity in top-5 bps is cancelled/modified ≤ 100 ms before market-determining orders,
• Quote half-life: median ≤ 80 ms in the 1-min window,
• Spread jump: ≥ p99 of intraday baseline without broad news signal.

E2 (medium)

• PTCR ≥ 60% (≤ 200 ms) or halving of quote lifetime vs baseline,
• OTR increase ≥ p97 in a 5-min window.

E1 (low)

• Series of short "flickers" at touch (≥ 5 add/replace/cancel in ≤ 1 s) without corresponding fills → watchlist.

• Event filter: Exclude funding turns, index prints, listings, macro events first - those legitimately trigger quote withdrawals.
• Venue comparison: Distinguish local vs broad synchronous fade (local → more suspicious).
• Fee context: Zero-maker fees/rebates increase quote churn; infer intent only when pre-touch concentration + spread jump occur together.

• For traders: Do not overestimate displayed depth; adjust execution style (TWAP/POV, avoid illiquid minutes), save slippage.
• For operators/compliance: Measurable pre-touch-cancel clusters, quote half-life, spread jumps & OTR profiles provide examinable evidence (SMARTS/TT-Score/Eventus compatible).

• QuestDB – Glossary "Quote Fade": definition of rapid quote withdrawal/modification before execution.
• Baruch & Glosten – "Flickering Quotes" (working paper): microstructure modelling of fleeting quotes.
• Liberty Street Economics (NY Fed) – "The Liquidity Mirage" (2015): why visible depth can disappear quickly; cross-market effects.
• FIA EPTA – "Liquidity and Quote Fading" (2016): industry commentary on ephemeral electronic quotes.
• Kaiko Research – "When October Surprise Meets Crypto Liquidity Drought" (Oct 2025): depth collapse / spread jumps, maker withdrawal.
• GDAX/Coinbase – ETH flash crash (June 2017): media/regulatory reports (customer compensation; CFTC inquiry).
• Nasdaq/IIROC – SMARTS surveillance: cross-market detection of fleeting quotes / messaging excesses.
• Trading Technologies – surveillance models: "abusive messaging", OTR contexts for quote/messaging signatures.
• MiCA – ESMA "Statement on MiCA Transitional Measures" (17 Dec 2024) & AMF guidance: application since 30.12.2024; transitions until 01.07.2026 possible.
• Fee/incentive context – Binance & OKX: zero-maker fees, rebates, VIP tiers → context for high quote-tick behaviour.