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Speed segmentation on exchanges: Competition for slow flow

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  • Anderson, Lisa
  • Andrews, Emad
  • Devani, Baiju
  • Mueller, Michael
  • Walton, Adrian

Abstract

In 2015, a Canadian stock exchange, TSX Alpha Exchange, implemented a speed bump for marketable orders and an inverted fee structure as part of a redesign. We find evidence of mild improvements in market quality after the redesign, and we do not find that Alpha appreciably segmented retail order flow away from other Canadian exchanges. For high-priced stocks, Alpha's users trade off improvements in execution size against larger effective spreads after the redesign and adjust their trading behavior in a manner consistent with this trade-off. The findings suggest that speed bumps may enable exchanges to compete for latency-insensitive orders.

Suggested Citation

  • Anderson, Lisa & Andrews, Emad & Devani, Baiju & Mueller, Michael & Walton, Adrian, 2022. "Speed segmentation on exchanges: Competition for slow flow," Journal of Financial Markets, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:finmar:v:58:y:2022:i:c:s1386418121000148
    DOI: 10.1016/j.finmar.2021.100632
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    Cited by:

    1. Brolley, Michael & Cimon, David A., 2020. "Order-Flow Segmentation, Liquidity, and Price Discovery: The Role of Latency Delays," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(8), pages 2555-2587, December.
    2. Breckenfelder, Johannes, 2024. "Competition among high-frequency traders and market quality," Journal of Economic Dynamics and Control, Elsevier, vol. 166(C).
    3. Khapko, Mariana & Zoican, Marius, 2021. "Do speed bumps curb low-latency investment? Evidence from a laboratory market," Journal of Financial Markets, Elsevier, vol. 55(C).
    4. Mariana Khapko & Marius Zoican, 2019. "Do speed bumps curb low-latency trading? Evidence from a laboratory market," Papers 1910.03068, arXiv.org.

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    More about this item

    Keywords

    Financial markets; Market structure and pricing;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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