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Do speed bumps curb low-latency trading? Evidence from a laboratory market

Mariana Khapko and Marius Zoican

Papers from arXiv.org

Abstract: Exchanges implement intentional trade delays to limit the harmful impact of low-latency trading. Do such "speed bumps" curb investment in fast trading technology? Data is scarce since trading technologies are proprietary. We build an experimental trading platform where participants face speed bumps and can invest in fast trading technology. We find that asymmetric speed bumps, on average, reduce investment in speed by only 20%. Increasing the magnitude of the speed bump by one standard deviation further reduces low-latency investment by 8.33%. Finally, introducing a symmetric speed bump leads to the same investment level as no speed bump at all.

Date: 2019-10
New Economics Papers: this item is included in nep-exp and nep-mst
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