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This paper investigates the impact of changes in the speed and pricing of direct market access on market efficiency, as measured by the frequency, duration, and profitability of arbitrage strategies. Two natural experiments on the Eurex exchange are identified: an exchange‐wide improvement in technology reducing message latency, and a reduction in the direct exchange access fee. We analyze their impact on the trading of Euro Stoxx 50 Index futures and the Xtrackers Euro Stoxx 50 Ucits ETF. A decrease in the frequency and duration of arbitrages following both events is observed.

This paper examines the relationship between limit order submissions and liquidity. We find that there is a negative relationship between the limit order arrival rate and the depth at the best quotes (limit order queue length) and a positive relationship between submissions and bid–ask spreads. This is consistent with queuing theory, which predicts that an increase in the limit order arrival rate increases the queue length and the time to execution of a limit order. Consequently, limit order traders cover the increase in costs and risks associated with the increase in the time to execution of limit orders by increasing bid–ask spread.