Latency in Fragmented Markets

51 Pages Posted: 6 Jul 2016 Last revised: 2 Jun 2019

Date Written: April 30, 2019


I examine the impact of cross-venue latency on market quality using a model of informed trader competition in a fragmented market. As cross-venue latency decreases, liquidity and price discovery improve while the expected profits of informed traders decline. Moreover, a fall in the latency of one venue can harm liquidity at the other venue. An extension predicts that, as the informed traders consolidate or outsource trading, benefits of shorter cross-venue latency are attenuated and its harmful effects intensify. My model generates testable predictions about the effects of changes in cross-venue latency on market quality.

Keywords: latency, market fragmentation, liquidity, price discovery

JEL Classification: D4, D62, G1, G20, L1

Suggested Citation

Lee, Tomy, Latency in Fragmented Markets (April 30, 2019). Available at SSRN: or

Tomy Lee (Contact Author)

CEU ( email )

NĂ¡dor u. 13, 408
Budapest, Budapest 1051

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