Order Protection through Delayed Messaging
43 Pages Posted: 15 Jul 2017 Last revised: 24 Nov 2017
Date Written: November 22, 2017
Several financial exchanges have recently introduced messaging delays (e.g., a 350 microsecond delay at IEX and NYSE American) intended to protect ordinary investors from high-frequency traders who exploit stale orders. We propose an equilibrium model of this exchange design as a modification of the standard continuous double auction market format. The model predicts that a messaging delay will generally improve price efficiency and lower transactions cost but will increase queuing costs. Some of the predictions are testable in the field or in a laboratory environment.
Keywords: Market design, IEX, lab experiments, high-frequency trading, continuous double auction
JEL Classification: C91, D44, D47, D53, G12, G14
Suggested Citation: Suggested Citation