Effects of a Speed Bump on Market Quality and Exchange Competition

59 Pages Posted: 8 Nov 2018 Last revised: 1 Oct 2019

See all articles by Bidisha Chakrabarty

Bidisha Chakrabarty

Saint Louis University - Richard A. Chaifetz School of Business

Jianning Huang

University of Memphis - Fogelman College of Business and Economics

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics

Date Written: September 30, 2019

Abstract

After a long period of high-speed trading, exchanges are now trying to slow down trading with speed bumps. We study how this market design innovation affects traders’ reaction times, the market quality of stocks, and the operators of competing exchanges. Post speed bump, we find slower reaction times to order book events, and depth changes consistent with reduced order detection and back-running. Reduction in quote-to-trade ratio and flickering quotes improves market quality. Exchanges without planned speed bumps lose market share, with reduced return on assets, stock returns, and enterprise value. Their stocks become attractive for short sellers.

Keywords: Speed bump; High-speed trading; Stock-exchange performance; Multi market trading; Market quality

JEL Classification: G10

Suggested Citation

Chakrabarty, Bidisha and Huang, Jianning and Jain, Pankaj K., Effects of a Speed Bump on Market Quality and Exchange Competition (September 30, 2019). Available at SSRN: https://ssrn.com/abstract=3280645 or http://dx.doi.org/10.2139/ssrn.3280645

Bidisha Chakrabarty (Contact Author)

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO MO 63108-3397
United States
3149773607 (Phone)
3149771479 (Fax)

HOME PAGE: http://business.slu.edu/departments/finance/faculty-staff/bidisha-chakrabarty

Jianning Huang

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
Memphis, TN usa 38152-3370
United States
9014210527 (Phone)

HOME PAGE: http://umdrive.memphis.edu/jhuang9/public/homepage.pdf

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

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