Competition between High-Frequency Traders and Market Quality

Breckenfelder, Johannes

doi:10.2139/ssrn.2264858

“…They find that it amounts to half of total trading costs. Breckenfelder (2013) documents that if more HFTs compete for trades their liquidity consumption increases.…”

Section: Related Literaturementioning

confidence: 99%

Need for Speed? Exchange Latency and Liquidity

Menkveld

¹

,

Zoican

²

2017

The Review of Financial Studies

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. (0)10 408 9031 Duisenberg school of finance is a collaboration of the Dutch financial sector and universities, with the ambition to support innovative research and offer top quality academic education in core areas of finance. Terms of use: Documents in Need for Speed? Exchange Latency and Liquidity AbstractSpeeding up the exchange does not necessarily improve liquidity. The price quotes of high-frequency market makers are more likely to meet speculative high-frequency "bandits," thus less likely to meet liquidity traders. The bid-ask spread is raised in response. The recursive dynamic model reveals that there is an additional spread-widening effect as market makers earn higher rents due to economies of scope from quote monitoring. Analysis of a NASDAQ-OMX speed upgrade provides supportive evidence.

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“…Extending beyond the issue of the introduction of HFT, Breckenfelder (2013) examines the effect of competition among HFT firms on market quality. Able to identify international entrants into the Swedish market, Breckenfelder (2013) finds HFT competition is associated with an increase in demand for liquidity, volatility and momentum trading.…”

Section: Review Of the Literaturementioning

confidence: 99%

“…Able to identify international entrants into the Swedish market, Breckenfelder (2013) finds HFT competition is associated with an increase in demand for liquidity, volatility and momentum trading. Similarly, examining 13 HFT firms on Canada's Alpha exchange, Brogaard and Garriott (2015), find that HFT firm entrants generally improve liquidity and price efficiency, however their marginal affect differs across stocks and their presence can be disruptive at first.…”

Section: Review Of the Literaturementioning

confidence: 99%

The impact of latency sensitive trading on high frequency arbitrage opportunities

Frino

¹

,

Mollica

²

,

Webb

³

et al. 2017

Pacific-Basin Finance Journal

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“…Menkveld (2013) finds that when an HFT firm begins to participate on the European Chi-X, bid-ask spreads decrease 50%. However, Breckenfelder (2013) finds that when multiple HFT firms enter the Swedish Nasdaq, market quality deteriorates.…”

Section: Introductionmentioning

confidence: 99%

High-Frequency Trading Competition

Brogaard

¹

,

Garriott²

2014

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. iii Terms of use: Documents in AbstractWe analyze trading dynamics as successive high-frequency trading (HFT) firms begin to trade stocks in an equity market. Entrants compete with incumbents for volume, and there is crowding out. Earlier entry is associated with larger effects. After Passive HFT entry, incumbent spreads tighten. After Aggressive HFT entry, incumbent order flow loses informedness. Revenue data suggest entry reduces the profitability of HFT activity. The results show that part of the value of HFT comes from its competitiveness. JEL classification: G20, G14, L1Bank classification: Financial markets; Market structure and pricing RésuméLes auteurs analysent la dynamique des échanges après que des entreprises qui font des transactions à haute fréquence eurent commencé successivement à négocier des titres sur le marché des actions. Les nouveaux venus rivalisent avec les acteurs déjà présents pour obtenir plus de volume, ce qui entraîne un effet d'éviction. Les effets exercés par les premiers entrants sont plus prononcés. L'entrée de participants passifs donne lieu à un resserrement de la fourchette de cotation pour les participants existants. Après l'arrivée de participants agressifs, le contenu informationnel du flux d'ordres des participants existants diminue. En outre, les données tendent à indiquer une baisse de rentabilité des transactions à haute fréquence. Les résultats de l'étude montrent que l'intérêt de la négociation à haute fréquence réside en partie dans la compétitivité de cette activité.Classification JEL : G20, G14, L1 Classification de la Banque : Marchés financiers; Structure de marché et fixation des prix 2

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Competition between High-Frequency Traders and Market Quality

Cited by 47 publications

References 20 publications

Need for Speed? Exchange Latency and Liquidity

Need for Speed? Exchange Latency and Liquidity

The impact of latency sensitive trading on high frequency arbitrage opportunities

High-Frequency Trading Competition

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