Duplicated Orders, Swift Cancellations, and Fast Market Making in Fragmented Markets

Hans Degryse, Rudy De Winne, Carole Gresse and Richard Payne
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Carole Gresse: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: Employing unique data from 91 stocks trading on their primary exchanges and three alternative venues, we show that limit orders are duplicated across competing venues as a result of cross-venue market-making strategies, leading to swift cancellation of duplicate orders after one of them is filled. This Duplicated-then-Canceled Liquidity is predominantly used by high-frequency traders when their inventories are not excessive. It reduces the execution costs of fast traders on alternative venues. It however has some adverse impact on execution costs on primary exchanges but those negative effects fail to outweigh the liquidity benefits of market fragmentation.

Keywords: high frequency trading (HFT); algorithmic trading (AT); fragmentation; limit order duplication; order cancellation (search for similar items in EconPapers)
Date: 2019-08
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Published in 46th Annual Meeting of the European Finance Association, Aug 2019, Carcavelos, Portugal

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04455567

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