It appears that at least some of the activity consists of algorithms that either 'play' with one another, or submit and cancel repeatedly in an apparent attempt to trigger an action on the part of another algorithm.
to quote <i>Panel A of Table 2 is an excerpt from the message file for ticker symbol ADCT on October 2, 2007 beginning at 09:51:57.849 and ending at 09:53:04.012 (roughly 66 seconds). Over this period, there were 35 submissions (and 35 cancels) of orders to buy 100 shares, and 32 submissions (and 32 cancels) of orders to buy 300 shares. The pricing of the orders caused the bid quote to rapidly oscillate between $20.04 and $20.05. The difference in order sizes and the brief intervals between cancelations and submissions suggest that the traffic is being generated by algorithms that seem to respond to each other.14</i>
i don't see where they play with each other. They are just trying to buy the bid. However, you dont have any info on whether these orders are part of a larger trade like basket or spread.
1) One reason people have done this at the market is to allow their system to breath. I know of one Java based system that does this at various times of the day to allow GC to kick in for 1/10 a second. This allows the quote side thread to breath and ignore (although I don't think it is very safe) incoming prices. 2) get a latency read on their line for their pending arbitrage orders - although I would think an off market cancel/replace would be more prudent. 3) quote stuffing - simplying trying to push the other guy's algo engine. 4) trigger - I am not certain on that. The one thing that makes me concerned with these cancel and replace is one firm and another can easily get together to move a market. Firm A sends a cancel replace in a particular sequence. Firm B sends back an ACK with cancel/replace in another sequence. This would be impossible for SEC/CFTC/FINRA etc to find. Shaiz... not just across firms. If some guy on the sells desk wants to move something and wants to tell his buddy on the prop desk, that would be the perfect way to communicate - without getting caught by gov or internal compliance.
since they're cancelling orders so quickly after placing them (<10ms) it's obvious they're targeting non-humans (human reaction time is ~ 200 ms).