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The informational effect and market quality impact of upstairs trading and fleeting orders on the Australian Securities Exchange

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  • Rose, Annica

Abstract

This paper investigates the informational effect of trading and market segmentation on the Australian Securities Exchange (ASX) paying particular attention to the recent phenomenon: fleeting orders.11Consistent with Hasbrouck and Saar (2009), fleeting orders are defined as non-marketable limit orders cancelled within 2s of submission. Confirming theoretical predictions, this study finds that permanent price effect (PPE) is significantly greater in the central limit order book (LOB) than in the upstairs market and that less informed institutional trades are routed to the upstairs market. It also finds that a well functioning upstairs market often results in lower transaction cost, higher volatility and larger trade size on the ASX. In the context of fleeting orders specifically, it finds the informational effect and market quality impact of upstairs market to be weaker after removing fleeting orders, which subsequently leads to the conclusion that recently introduced execution algorithms, which leave a trace of fleeting orders, often result in lower PPE and are mostly used my uninformed liquidity traders.

Suggested Citation

  • Rose, Annica, 2014. "The informational effect and market quality impact of upstairs trading and fleeting orders on the Australian Securities Exchange," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 171-184.
    • Handle: RePEc:eee:empfin:v:28:y:2014:i:c:p:171-184
    DOI: 10.1016/j.jempfin.2014.06.003
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    Cited by:

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    2. Aitken, Michael & Chen, Haoming & Foley, Sean, 2017. "The impact of fragmentation, exchange fees and liquidity provision on market quality," Journal of Empirical Finance, Elsevier, vol. 41(C), pages 140-160.
    3. Boilard, J.-F. & Kanazawa, K. & Takayasu, H. & Takayasu, M., 2018. "Empirical scaling relations of market event rates in foreign currency market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 509(C), pages 1152-1161.
    4. Białkowski, Jędrzej & Hong, Sanghyun & Wagner, Moritz, 2022. "From upstairs to downstairs trading: Evidence from a highly segmented market," Finance Research Letters, Elsevier, vol. 46(PB).
    5. Eleni Gousgounis & Sayee Srinivasan, 2019. "Block trades in options markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(8), pages 985-1007, August.

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    More about this item

    Keywords

    Informational effect; Upstairs market; Execution cost; Fleeting orders;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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