Throttling hyperactive robots – Order-to-trade ratios at the Oslo Stock Exchange

Jørgensen, Kjell; Skjeltorp, Johannes A.; Ødegaard, Bernt Arne

doi:10.1016/j.finmar.2017.09.001

Cited by 32 publications

(18 citation statements)

References 31 publications

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“…This change in trading behavior, however, does not appear to effect market quality. These findings are in contrast to Jorgensen et al (2018) who find that the fee reduced the OTRs in the Oslo stock exchange without any impact on market quality. They attribute the lack of any adverse impact on market quality to the design of the regulation which was tailored to encourage liquidity supply.…”

Section: Introductioncontrasting

confidence: 99%

“…Malinova et al (2013) find that a fee imposed on high number of messages in the Canadian markets impacted high-frequency market makers and resulted in an increase in transactions costs for various categories of investors in the market. Jorgensen et al (2018) find that the fee did not cause any adverse changes to average liquidity at the Oslo stock exchange but did not find any benefits from the fee either.…”

Section: High Frequency Trading and Regulatory Interventionsmentioning

confidence: 70%

“…The second implementation of the fee was similar to the Oslo stock exchange where also the liquidity supplying orders were exempted from the OTR fee. Jorgensen et al (2018) do not find an adverse impact of the fee and conclude that differences in the design of the regulation drives the likely impact.…”

Section: Discussionmentioning

confidence: 82%

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When do Regulatory Interventions Work?

2020

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Previous studies find mixed results about how a fee on high order-to-trade (OTR) ratios impacts market quality. Using a natural experiment where such a fee was introduced twice for different reasons, this paper finds evidence of impact only when the implementation matched the motive. We use a difference-in-difference regression, that exploits microstructure features, to find causal evidence of lower aggregate OTR and higher market quality when the fee was used to manage limited exchange infrastructure, but little to no change in the OTRs or market quality when it was used for a regulatory need to slow down high frequency trading.

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Section: Introductioncontrasting

confidence: 99%

Section: High Frequency Trading and Regulatory Interventionsmentioning

confidence: 70%

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When do Regulatory Interventions Work?

2020

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“…The OTR takes advantage of a typical trading behavior of HFT firms, i.e., submitting many orders to the exchange while executing only a small portion of them due to massive amounts of order deletions and modifications. Several academic studies use the OTR to measure HFT activity in order to investigate different effects of HFT on securities markets (Brogaard et al, 2015;Jørgensen et al, 2016;Malinova et al, 2016). Besides researchers, also regulators rely on the OTR as a measure for HFT and have passed acts that enforce trading venues to charge fees for traders with excessive OTRs (e.g., German High-Frequency Trading Act, 2013;Friederich and Payne, 2015).…”

Section: Fragmentation and High-frequency Tradingmentioning

confidence: 99%

Coordination of Circuit Breakers? Volume Migration and Volatility Spillover in Fragmented Markets

2017

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The introduction of the Markets in Financial Instruments Directive (MiFID I) in November 2007 fostered the competition between incumbent exchanges and emerging alternative venues. This increased competition resulted in a fragmented market landscape, which benefits market participants due to decreasing explicit transaction costs. However, market fragmentation is also associated with drawbacks for regulators and market participants since liquidity and price discovery are split across different trading venues.One particular issue in fragmented markets are safeguards such as circuit breakers, which aim to prevent extreme price jumps and excessive volatility. If a stock is traded on multiple venues, these circuit breakers might forfeit their effectiveness to manage excess volatility when they are not coordinated among different venues.Therefore, we provide new empirical insights concerning the discussion of circuit breaker coordination and analyze volume migration, shifts in market shares, and volatility spillovers during volatility interruptions in European securities markets. A volatility interruption is a specific type of circuit breaker that interrupts continuous trading with an unscheduled call auction. We observe that during volatility interruptions on the main market, turnover on the alternative venues almost dries out although there is no active circuit breaker on the alternative venues. Moreover, the market share of the main market increases sharply during the auction of the volatility interruption. Thus, the main market is therefore of major importance during turbulent times. By analyzing factors influencing the shift of market shares during volatility interruptions on the main market, we are able to trace back the increasing importance of the main market during these times to two different phenomena: the level of market fragmentation and the level of HFT activity.On the one hand, our results reveal that if a circuit breaker is triggered, traders either refrain from trading on the alternative venues or, if they trade, they prefer to participate in the call auction on the main market. On the other hand, we highlight that multi-market market making and arbitrage trading strategies of high-frequency traders get constrained and become more risky in the absence of the main market because an important price signal is missing and rebalancing their inventories gets too expensive.Consequently, our results provide empirical support against the hypothesis and often claimed concern that volume migrates from the main market to alternative venues during a circuit breaker on the main market. A coordination of circuit breakers among venues does not seem to be necessary because markets are implicitly coordinated due to traders' behavior. January 27, 2017 Coordination of Circuit AbstractWe study circuit breakers in a fragmented, multi-market environment and investigate whether a coordination of circuit breakers is necessary to ensure their effectiveness. In doing so, we analyze 2,337 volatility interruptions on Deutsche Boer...

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“…For details on the trading fees and market transparency at the OSE, see for exampleJørgensen, Skjeltorp, and Ødegaard (2017) orMeling (2016).8 The composition of the OBX index is revised twice a year, in June and December, primarily based on total stock trading volume at the OSE over the previous six months Meling (2016). provides more details on the OBX index.…”

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confidence: 99%