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

Abstract

We investigate the effects of introducing a fee on excessive order to trade ratios (OTR) on market quality at the Oslo Stock Exchange (OSE). We find that traders reacted to the regulation, as measured OTRs fell. However, market quality, measured with depth, spreads, and realized volatility, remained largely unaffected. This result differs sharply from the experience in other markets, such as Italy and Canada, where similar regulatory changes were accompanied by a worsening of liquidity. The unchanged market quality at the OSE is likely due to the different design of the regulation, which is tailored to encourage liquidity supply.

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

JEL Classification: G10, G20