Competing on Speed

Emiliano S. Pagnotta and Thomas Philippon ()

Econometrica, 2018, vol. 86, issue 3, 1067-1115

Abstract: We analyze trading speed and fragmentation in asset markets. In our model, trading venues make technological investments and compete for investors who choose where and how much to trade. Faster venues charge higher fees and attract speed†sensitive investors. Competition among venues increases investor participation, trading volume, and allocative efficiency, but entry and fragmentation can be excessive, and speeds are generically inefficient. Regulations that protect transaction prices (e.g., Securities and Exchange Commission trade†through rule) lead to greater fragmentation. Our model sheds light on the experience of European and U.S. markets since the implementation of Markets in Financial Instruments Directive and Regulation National Markets System.

Date: 2018
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Citations: View citations in EconPapers (4)

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https://doi.org/10.3982/ECTA10762

Related works:
Working Paper: Competing on Speed (2012)
Working Paper: Competing on Speed (2011)
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