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Algorithmic Trading and Fragmentation

The Journal of Trading Fall 2017, 12 (4) 18-28; DOI:10.3905/jot.2017.12.4.018

Posted: 10 Jun 2019

See all articles by Archana Jain

Archana Jain

Rochester Institute of Technology

Chinmay Jain

SUNY Geneseo

Christine X. Jiang

Fudan University

Date Written: March 15, 2017

Abstract

Prior studies on algorithmic trading (AT) have mostly focused on a single exchange. The authors use a public dataset provided by the Securities and Exchange Commission (SEC) covering all major U.S. exchanges to study the impact of AT and its fragmentation on market liquidity. Using a proxy of AT derived from trade to order volume ratio, they find that AT concentrated on a single exchange improves liquidity. However, AT fragmentation onto multiple exchanges is associated with deterioration in liquidity. Their findings suggest a market-making as well as predatory role of AT and have policy implications.

Keywords: Algorithmic Trading; Liquidity; Market Fragmentation

Suggested Citation

Jain, Archana and Jain, Chinmay and Jiang, Christine X., Algorithmic Trading and Fragmentation (March 15, 2017). The Journal of Trading Fall 2017, 12 (4) 18-28; DOI:10.3905/jot.2017.12.4.018, Available at SSRN: https://ssrn.com/abstract=3141628

Archana Jain

Rochester Institute of Technology ( email )

Rochester, NY 14623
United States

Chinmay Jain (Contact Author)

SUNY Geneseo ( email )

1 College Cir
South Hall
Geneseo, NY NY 14618
United States

Christine X. Jiang

Fudan University ( email )

School of Management
Shanghai, 200433
China
862125011085 (Phone)

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