Trading Fast and Slow: Colocation and Liquidity

Brogaard, Jonathan; Hagströmer, Björn; Nordén, Lars; Riordan, Ryan

doi:10.1093/rfs/hhv045

Cited by 207 publications

(92 citation statements)

References 26 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Gai, Yao & Ye (2013) also find that order book liquidity improves, but through more depth rather than an improved spread. Brogaard et al (2015b) study a colocation event in which traders are given various options. They find that the fastest colocation service is primarily used for HFT market making.…”

Section: High-frequency Market Makingmentioning

confidence: 99%

“…An exchange fosters such speed heterogeneity by offering a menu of colocation services, with faster ones being more expensive. Brogaard et al (2015b) study trading before and after an exchange offered a richer menu of colocation services. If exchanges strive for maximum trade among investors, then such encouragement of speed heterogeneity is evidence that they believe intermediation chains are good for trade.…”

Section: Evidencementioning

confidence: 99%

See 1 more Smart Citation

The Economics of High-Frequency Trading: Taking Stock

Menkveld

2016

Annu. Rev. Financ. Econ.

249

100

View full text Add to dashboard Cite

show abstract

Section: High-frequency Market Makingmentioning

confidence: 99%

Section: Evidencementioning

confidence: 99%

The Economics of High-Frequency Trading: Taking Stock

Menkveld

2016

Annu. Rev. Financ. Econ.

249

100

View full text Add to dashboard Cite

show abstract

“…One study found that increasing the speed of market-making participants has positive benefits to market liquidity. (Brogaard et al, 2015). Another study identified clusters of extremely high and extremely low limit-order cancellation activity, observing that HFTs bring efficiency to the market without the need to have executions at intermediate prices (Blocher et al, 2016).…”

Section: Financial Innovation: the Collateralized Debt Obligation (Cdo)mentioning

confidence: 99%

Financialization and Information Technology: Themes, issues and Critical Debates – part I

Currie

Lagoarde‐Segot

2017

Journal of Information Technology

View full text Add to dashboard Cite

“…The OTR takes advantage of a typical trading behavior of HFT firms, i.e., submitting many orders to the exchange while executing only a small portion of them due to massive amounts of order deletions and modifications. Several academic studies use the OTR to measure HFT activity in order to investigate different effects of HFT on securities markets (Brogaard et al, 2015;Jørgensen et al, 2016;Malinova et al, 2016). Besides researchers, also regulators rely on the OTR as a measure for HFT and have passed acts that enforce trading venues to charge fees for traders with excessive OTRs (e.g., German High-Frequency Trading Act, 2013;Friederich and Payne, 2015).…”

Section: Fragmentation and High-frequency Tradingmentioning

confidence: 99%

Coordination of Circuit Breakers? Volume Migration and Volatility Spillover in Fragmented Markets

2017

View full text Add to dashboard Cite

The introduction of the Markets in Financial Instruments Directive (MiFID I) in November 2007 fostered the competition between incumbent exchanges and emerging alternative venues. This increased competition resulted in a fragmented market landscape, which benefits market participants due to decreasing explicit transaction costs. However, market fragmentation is also associated with drawbacks for regulators and market participants since liquidity and price discovery are split across different trading venues.One particular issue in fragmented markets are safeguards such as circuit breakers, which aim to prevent extreme price jumps and excessive volatility. If a stock is traded on multiple venues, these circuit breakers might forfeit their effectiveness to manage excess volatility when they are not coordinated among different venues.Therefore, we provide new empirical insights concerning the discussion of circuit breaker coordination and analyze volume migration, shifts in market shares, and volatility spillovers during volatility interruptions in European securities markets. A volatility interruption is a specific type of circuit breaker that interrupts continuous trading with an unscheduled call auction. We observe that during volatility interruptions on the main market, turnover on the alternative venues almost dries out although there is no active circuit breaker on the alternative venues. Moreover, the market share of the main market increases sharply during the auction of the volatility interruption. Thus, the main market is therefore of major importance during turbulent times. By analyzing factors influencing the shift of market shares during volatility interruptions on the main market, we are able to trace back the increasing importance of the main market during these times to two different phenomena: the level of market fragmentation and the level of HFT activity.On the one hand, our results reveal that if a circuit breaker is triggered, traders either refrain from trading on the alternative venues or, if they trade, they prefer to participate in the call auction on the main market. On the other hand, we highlight that multi-market market making and arbitrage trading strategies of high-frequency traders get constrained and become more risky in the absence of the main market because an important price signal is missing and rebalancing their inventories gets too expensive.Consequently, our results provide empirical support against the hypothesis and often claimed concern that volume migrates from the main market to alternative venues during a circuit breaker on the main market. A coordination of circuit breakers among venues does not seem to be necessary because markets are implicitly coordinated due to traders' behavior. January 27, 2017 Coordination of Circuit AbstractWe study circuit breakers in a fragmented, multi-market environment and investigate whether a coordination of circuit breakers is necessary to ensure their effectiveness. In doing so, we analyze 2,337 volatility interruptions on Deutsche Boer...

show abstract

Trading Fast and Slow: Colocation and Liquidity

Cited by 207 publications

References 26 publications

The Economics of High-Frequency Trading: Taking Stock

The Economics of High-Frequency Trading: Taking Stock

Financialization and Information Technology: Themes, issues and Critical Debates – part I

Coordination of Circuit Breakers? Volume Migration and Volatility Spillover in Fragmented Markets

Contact Info

Product

Resources

About