Abstract

http://ssrn.com/abstract=2399225
 


 



Throttling Hyperactive Robots - Message to Trade Ratios at the Oslo Stock Exchange


Kjell Jorgensen


BI Norwegian Business School - Department of Financial Economics

Johannes Atle Skjeltorp


Central Bank of Norway

Bernt Arne Ødegaard


University of Stavanger; Norwegian School of Economics (NHH)

February 20, 2014


Abstract:     
We use the introduction of a cost on high message to trade ratios for traders at the Oslo Stock Exchange to investigate the effects on market quality and fragmentation of introduction of such "speed bumps'' to equity trading. The exchange introduced a fee payable by market participants whose orders (messages to the exchange's trade system) exceeded seventy times the number of consummated trades. Market participants quickly adjusted their behavior to avoid paying the extra cost. The overall ratios of messages to trades fell, but common measures of the quality of trading, such as liquidity, transaction costs, and realized volatility, did not deteriorate, they were essentially unchanged. This is a policy intervention where we can match the treated sample (OSE listed stocks) with the same assets traded elsewhere. We can therefore do a "difference-in-difference'' analysis of liquidity in Oslo compared with liquidity of the same asset traded on other exchanges. Surprisingly, we see that liquidity, as measured by the spread, deteriorated on alternative market places when the tax was introduced, a tax that is only valid for trading at the OSE. The spread is the only liquidity measure for which we observe this difference between the OSE and other markets, for depth and turnover we do not find any differences between other markets and the OSE.

Number of Pages in PDF File: 49

Keywords: High Frequency Trading, Regulation, Order to Trade Ratio, Message to Trade Ratio

JEL Classification: G10, G20

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Date posted: February 22, 2014  

Suggested Citation

Jorgensen, Kjell and Skjeltorp, Johannes Atle and Ødegaard, Bernt Arne, Throttling Hyperactive Robots - Message to Trade Ratios at the Oslo Stock Exchange (February 20, 2014). Available at SSRN: http://ssrn.com/abstract=2399225 or http://dx.doi.org/10.2139/ssrn.2399225

Contact Information

Kjell Jorgensen
BI Norwegian Business School - Department of Financial Economics ( email )
Nydalsveien 37
Oslo, 0442
Norway
HOME PAGE: http://www.bi.no
Johannes Atle Skjeltorp
Central Bank of Norway ( email )
P.O. Box 1179
Oslo, N-0107
Norway
HOME PAGE: http://www.norges-bank.no/research/skjeltorp/
Bernt Arne Ødegaard (Contact Author)
University of Stavanger ( email )
UiS Business School
Stavanger, NO-4036
Norway
HOME PAGE: http://www1.uis.no/ansatt/odegaard
Norwegian School of Economics (NHH) ( email )
Department of Finance
Helleveien 30
Bergen, 5045
Norway
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