Cancellation Latency: The Good, the Bad, and the Ugly

Abstract:     
HFT involves submitting large numbers of orders to generate congestion. Regulators classify such stuffing activity as a type of market manipulation. Thus, regulators are considering cut-off value for minimal quote life. However, even simple summary statistics for the time an order takes to go from being placed to being posted or how long a cancellation order takes to execute on the exchange are not available. Without such empirically facts it is difficult to understand the potential impact of HFT or how to regulate it. This paper attempts to fill this gap in the literature and provide several statistics concerning cancellation latency.

Number of Pages in PDF File: 34

Keywords: cancellation, latency, high frequency trading, HFT, quote stuffing, market regulation, volume, risk, latency arbitrage, microstructure

JEL Classification: F00, G00, G14, G15, G18, G19, K2, K33, L11, L51, L98, N25

working papers series