High-Frequency Trading and Institutional Trading Costs

46 Pages Posted: 13 Feb 2018 Last revised: 17 Oct 2019

See all articles by Marie Chen

Marie Chen

London School of Economics

Corey Garriott

TMX Group

Date Written: October 17, 2019

Abstract

Using data on Canadian bond futures, we examine how high-frequency traders (HFTs) interact with institutions building large positions. In contrast to recent findings, we find HFTs in the data act as small-sized liquidity suppliers, and we reject the hypothesis that they engage in back running, a predatory trading strategy. Using a quasi-experiment in November 2011, in which a number of HFTs started trading the bond future, we run a difference-in-differences event study and find more competition among HFTs improves implementation shortfall, effective spreads, and short-term price impacts for institutional trading in Canadian bond futures.

Keywords: High-frequency trading; Market microstructure; Financial markets; Institutional trading

JEL Classification: G20, G14, L10

Suggested Citation

Chen, Marie and Garriott, Corey, High-Frequency Trading and Institutional Trading Costs (October 17, 2019). Available at SSRN: https://ssrn.com/abstract=3121165 or http://dx.doi.org/10.2139/ssrn.3121165

Marie Chen

London School of Economics ( email )

United Kingdom

Corey Garriott (Contact Author)

TMX Group ( email )

130 King St W
Toronto, Ontario M5X 2A2
Canada

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