Duplicated Orders, Swift Cancellations, and Fast Market Making in Fragmented Markets

50 Pages Posted: 10 Apr 2019 Last revised: 27 Oct 2022

See all articles by Hans Degryse

Hans Degryse

KU Leuven - Faculty of Business and Economics (FEB)

Rudy De Winne

UCLouvain - Louvain Finance

Carole Gresse

Université Paris Dauphine-PSL

Richard Payne

City University London - The Business School

Date Written: January 21, 2022

Abstract

Employing unique data from 91 stocks trading on their primary exchanges and three alternative venues, we show that limit orders are duplicated across competing venues as a result of cross-venue market-making strategies, leading to swift cancellation of duplicate orders after one of them is filled. This Duplicated-then-Canceled Liquidity, which accounts for a sizeable fraction of order cancellations, is predominantly used by high-frequency traders to build inventories. It is reduced by the use of smart order routing by aggressive traders. Its adverse impact on execution costs is small and these negative effects fail to outweigh the liquidity benefits of market fragmentation.

Keywords: high frequency trading (HFT), algorithmic trading (AT), fragmentation, limit order duplication, order cancellation

JEL Classification: G14, G15, G18

Suggested Citation

Degryse, Hans and De Winne, Rudy and Gresse, Carole and Payne, Richard G., Duplicated Orders, Swift Cancellations, and Fast Market Making in Fragmented Markets (January 21, 2022). Université Paris-Dauphine Research Paper No. 3356695, Available at SSRN: https://ssrn.com/abstract=3356695 or http://dx.doi.org/10.2139/ssrn.3356695

Hans Degryse

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Rudy De Winne

UCLouvain - Louvain Finance ( email )

Belgium
+3265323334 (Phone)

Carole Gresse (Contact Author)

Université Paris Dauphine-PSL ( email )

DRM
Place du Maréchal de Lattre de Tassigny
Paris cedex 16, 75775
France

HOME PAGE: http://www.carolegresse.com

Richard G. Payne

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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