Competing on Speed

57 Pages Posted: 2 Dec 2011 Last revised: 17 Dec 2018

See all articles by Emiliano Pagnotta

Emiliano Pagnotta

Singapore Management University

Thomas Philippon

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: May 28, 2018


We analyze trading speed and fragmentation in asset markets. In our model, trading venues make technological investments and compete for investors who choose where and how much to trade. Faster venues charge higher fees and attract speed-sensitive investors. Competition among venues increases investor participation, trading volume, and allocative efficiency, but entry and fragmentation can be excessive, and speeds are generically inefficient. Regulations that protect transaction prices (e.g., Securities and Exchange Commission trade-through rule) lead to greater fragmentation. Our model sheds light on the experience of European and U.S. markets since the implementation of Markets in Financial Instruments Directive and Regulation National Markets System.

Keywords: liquidity, fragmentation, trading, exchanges, asset pricing, financial markets, high frequency trading, regulation, search, welfare

JEL Classification: G12, G15, G18, D40, D43, D61

Suggested Citation

Pagnotta, Emiliano and Philippon, Thomas, Competing on Speed (May 28, 2018). Econometrica, Vol. 86, No. 3, Available at SSRN: or

Emiliano Pagnotta (Contact Author)

Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore, 178899


Thomas Philippon

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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