Cross-Venue Liquidity Provision: High Frequency Trading and Ghost Liquidity

Abstract

Wuyts as well as participants of the Group of Economic Advisors at ESMA, seminar participants at KU Leuven, participants at the 35 th Spring AFFI conference, the 4 th WiM meeting, the 2 nd ECM Workshop, and the 2 nd SAFE Market Microstructure Conference for their comments. We thank Yujuan Zhang for excellent research assistance, ESMA for providing access to the data, and the French National Research Agency (ANR) for funding through project GHOST. The views presented in this paper are those of the authors and do not necessarily reflect the views of ESMA.

High-Frequency Trading and its Impact on Market Liquidity: A Review of Literature

“…Van Kervel ( 2015) empirically shows that liquidity supply reduces as a result of fast trading activities across multiple venues in the U.S. Similarly, Degryse et al (2019) document the effects of HFT-based cross-venue trading strategies on liquidity on a sample of European exchanges. Accordingly, because of conditional orders across multiple venues, consolidated liquidity becomes higher than actual, i.e., the one with true trading purposes.…”