City Research Online

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.

Publication Type:	Monograph (Working Paper)
Publisher Keywords:	high frequency trading (HFT), algorithmic trading (AT), fragmentation, limit order duplication, order cancellation
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HG Finance
Departments:	Bayes Business School Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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