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Order protection through delayed messaging

Eric M. Aldrich and Daniel Friedman ()

Discussion Papers, Research Professorship Market Design: Theory and Pragmatics from WZB Berlin Social Science Center

Abstract: Several financial exchanges have recently introduced messaging delays (e.g., a 350 microsecond delay at IEX and NYSE American) intended to protect ordinary investors from high-frequency traders who exploit stale orders. We propose an equilibrium model of this exchange design as a modification of the standard continuous double auction market format. The model predicts that a messaging delay will generally improve price efficiency and lower transactions cost but will increase queuing costs. Some of the predictions are testable in the field or in a laboratory environment.

Keywords: market design; high-frequency trading; continuous double auction; IEX; lab experiments (search for similar items in EconPapers)
JEL-codes: C91 D44 D47 D53 G12 G14 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-des, nep-exp and nep-mst
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Citations: View citations in EconPapers (2) Track citations by RSS feed

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https://www.econstor.eu/bitstream/10419/173265/1/1011069830.pdf (application/pdf)

Related works:
Working Paper: Order Protection through Delayed Messaging (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wzbmdn:spii2017502

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