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Speed segmentation on exchanges: Competition for slow flow

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

Journal of Financial Markets, 2022, vol. 58, issue C

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.

Keywords: Financial markets; Market structure and pricing (search for similar items in EconPapers)
JEL-codes: G14 G24 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.finmar.2021.100632

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