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Order Cancellations, Fees, and Execution Quality in U.S. Equity Options

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  • Todd G Griffith
  • Robert A Van Ness

Abstract

We examine the effects of an order cancellation fee on limit order flow and execution quality in the PHLX options market. The cancellation fee on professional order flow effectively reduces the rate at which limit orders are canceled. Whereas the cancellation fee discourages the submission of nonmarketable orders, it encourages the submission of marketable orders. Consequently, nonmarketable order fill rates increase; marketable order fill speeds decrease; and bid-ask spreads widen. We also find slight increases in both dollar volume and market share.ReceivedMay 22, 2018; editorial decisionMay27, 2019 by Editor AndrewKarolyi. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Todd G Griffith & Robert A Van Ness, 2020. "Order Cancellations, Fees, and Execution Quality in U.S. Equity Options," The Review of Financial Studies, Society for Financial Studies, vol. 33(4), pages 1534-1564.
    • Handle: RePEc:oup:rfinst:v:33:y:2020:i:4:p:1534-1564.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhz088
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    Cited by:

    1. Liu, Wei, 2021. "Can HFT profit in Chinese stock market?," Economics Letters, Elsevier, vol. 209(C).
    2. Antonio Figueiredo & Pankaj Jain & Suchismita Mishra, 2023. "The role of fleeting orders on option expiration days," Quantitative Finance, Taylor & Francis Journals, vol. 23(10), pages 1511-1529, October.

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