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

Annica Rose

Journal of Empirical Finance, 2014, vol. 28, issue C, 171-184

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.

Keywords: Informational effect; Upstairs market; Execution cost; Fleeting orders (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 G15 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:28:y:2014:i:c:p:171-184

DOI: 10.1016/j.jempfin.2014.06.003

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