City Research Online

Abstract

Employing unique data from 91 stocks trading on their primary exchanges and three alternative venues, we show that liquidity suppliers post duplicate limit orders on competing trading venues and cancel the duplicated orders immediately after one of them is filled. This is consistent with liquidity suppliers engaging in cross-venue market-making. This Duplicated-then-Canceled Liquidity is predominantly used by high-frequency traders when their inventories are not excessive. It reduces 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:	Article
Additional Information:	This article will be published in its final form in Management Science by Institute for Operations Research and Management Sciences and it will be available online at: https://pubsonline.informs.org/journal/mnsc
Publisher Keywords:	High Frequency Trading (HFT), Algorithmic Trading (AT), Fragmentation, Limit order duplication, Order cancellation
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School
SWORD Depositor:	Symplectic Administrator

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