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The Behaviour of High-Frequency Traders Under Different Market Stress Scenarios

58 Pages Posted: 22 Aug 2017  

Nicolas Megarbane

Autorit ́e des March ́es Financiers

Pamela Saliba

Autorit ́e des March ́es Financiers; Ecole Polytechnique, Paris - Centre De Mathématiques Appliquées (CMAP)

Charles‐Albert Lehalle

Capital Fund Management

Mathieu Rosenbaum

Ecole Polytechnique, Paris

Date Written: August 18, 2017

Abstract

There is a big controversy about the consequences of High-Frequency Traders (HFTs) activity on market quality. This empirical study uses a unique data set provided by the French regulator "Autorité des Marchés Financiers" and gives some evidence concerning the practices of these members under market stress. On the one hand, we investigate the changes in HFTs behaviour related to the level of market stress at a daily scale. On the other hand, we analyse the intraday reactions of these specific market participants to various announcements. We find that in the absence of significant news, whatever the market conditions, HFTs are the main contributors to liquidity with a participation of 80% in the market depth at the three best limits. They constitute 60% of the traded amounts, with an aggressive/passive ratio equal to 53%. We identify a change of regime in the presence of scheduled news that goes beyond the expected reaction to volatility variations. This is notably characterised by an additional decrease by 15% of HFTs share in market depth. Moreover, we focus on two specific events: the European Central Bank announcements of the 3rd of December 2015 that occurred within a trading day and the Brexit that occurred prior to the market opening. Based on these two particular cases, we get that in extreme situations, when non-HFTs have time to adjust their trading tactics, they act as liquidity providers in place of HFTs.

Keywords: High frequency trading, volatility, microstructure, regulation

Suggested Citation

Megarbane, Nicolas and Saliba, Pamela and Lehalle, Charles‐Albert and Rosenbaum, Mathieu, The Behaviour of High-Frequency Traders Under Different Market Stress Scenarios (August 18, 2017). Available at SSRN: https://ssrn.com/abstract=3021829

Nicolas Megarbane

Autorit ́e des March ́es Financiers ( email )

France

Pamela Saliba

Autorit ́e des March ́es Financiers ( email )

France

Ecole Polytechnique, Paris - Centre De Mathématiques Appliquées (CMAP) ( email )

France

Charles‐Albert Lehalle

Capital Fund Management

23 rue de l'Université
Paris, 75007
France

Mathieu Rosenbaum (Contact Author)

Ecole Polytechnique, Paris ( email )

1 rue Descartes
Paris, 75005
France

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