Abstract

http://ssrn.com/abstract=2183806
 
 

References (23)



 
 

Footnotes (12)



 


 



Taxing High Frequency Market Making: Who Pays the Bill?


Katya Malinova


University of Toronto

Andreas Park


University of Toronto - Department of Economics; University of Toronto - Finance Area; University of Toronto at Mississauga - Department of Management

Ryan Riordan


Queen's School of Business

June 14, 2016


Abstract:     
In April 2012, the Canadian regulator IIROC imposed a fee on order submissions and cancellations. Worldwide, this was the first time that a regulator imposed a cost on activities that are intrinsic components of high frequency traders’ strategies. We find that high frequency market makers adjusted their behavior and acted significantly less competitively, so that market-wide bid-ask spreads rose by 9%, causing an increase in trading costs for retail traders. The implementation shortfall for institutions that used marketable orders increased, too, but for those that use both market and limit orders, costs remained unaffected. Our study provides causal evidence for the critical importance of liquidity provision by high frequency market makers in today’s markets.

Number of Pages in PDF File: 48

Keywords: high frequency trading, message tax, market quality, retail traders

JEL Classification: G14, G18


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Date posted: December 6, 2012 ; Last revised: June 24, 2016

Suggested Citation

Malinova, Katya and Park, Andreas and Riordan, Ryan, Taxing High Frequency Market Making: Who Pays the Bill? (June 14, 2016). Available at SSRN: http://ssrn.com/abstract=2183806 or http://dx.doi.org/10.2139/ssrn.2183806

Contact Information

Katya Malinova
University of Toronto ( email )
Department of Statistical Sciences
Toronto, Ontario M5S 3G8
Canada
HOME PAGE: http://individual.utoronto.ca/kmalinova/
Andreas Park (Contact Author)
University of Toronto - Department of Economics ( email )
150 St. George Street
Toronto, Ontario M5S3G7
Canada
HOME PAGE: http://www.chass.utoronto.ca/~apark/
University of Toronto - Finance Area ( email )
Toronto, Ontario M5S 3E6
Canada

University of Toronto at Mississauga - Department of Management ( email )

Canada
Ryan Riordan
Queen's School of Business ( email )
Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

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References:  23
Footnotes:  12

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