IDEAS home Printed from https://ideas.repec.org/a/taf/eurjfi/v28y2022i16p1621-1641.html
   My bibliography  Save this article

Large-caps liquidity provision, market liquidity and high-frequency market makers’ trading behaviour

Author

Listed:
  • Mingfa Ding
  • Sandy Suardi
  • Caihong Xu
  • Dong Zhang

Abstract

This paper exploits the introduction of the liquidity provision scheme (LPS) in NASDAQ Stockholm (NOMX) to assess how the implementation of LPS affects market liquidity and the trading behaviors of high-frequency market makers. Unlike the traditional designated market makers (DMM) that target the liquidity supply of small and less traded stocks, LPS is implemented for large-caps and liquid stocks. LPS requires participants to submit buy and sell orders at the European best bid and offer quotes with a size larger than 50,000 Swedish Krona on each trade side. LPS delivers liquidity improvements by reducing order processing costs in the large-cap and cross-listed stocks in the NOMX and Chi-X markets, with no evidence of market liquidity migration from Chi-X to NOMX. As market makers registered with LPS are likely high-frequency traders, LPS stabilizes market liquidity as market makers’ decisions to supply or demand liquidity become less sensitive to market conditions like the spread and order imbalance.

Suggested Citation

  • Mingfa Ding & Sandy Suardi & Caihong Xu & Dong Zhang, 2022. "Large-caps liquidity provision, market liquidity and high-frequency market makers’ trading behaviour," The European Journal of Finance, Taylor & Francis Journals, vol. 28(16), pages 1621-1641, November.
    • Handle: RePEc:taf:eurjfi:v:28:y:2022:i:16:p:1621-1641
    DOI: 10.1080/1351847X.2021.1988670
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1351847X.2021.1988670
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/1351847X.2021.1988670?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Petar-Pierre Matek & Maša Galiæ, 2024. "The impact of designated market-makers on liquidity in frontier markets: Evidence from Zagreb and Ljubljana Stock Exchanges," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 42(1), pages 95-121.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:28:y:2022:i:16:p:1621-1641. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REJF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.