A Tale of Two Cities – Inter-Market Latency and Fast-Trader Competition

84 Pages Posted: 29 Oct 2019

See all articles by Satchit Sagade

Satchit Sagade

Nasdaq, Inc.; Leibniz Institute for Financial Research SAFE

Stefan Scharnowski

University of Mannheim

Erik Theissen

University of Mannheim - Finance Area

Christian Westheide

University of Vienna - Department of Finance

Date Written: July 10, 2024

Abstract

We examine the impact of increasing competition among the fastest traders by analyzing a new low-latency microwave network connecting exchanges trading the same stocks. Using a difference-in-differences approach comparing German stocks with similar French stocks, we find improved market integration, faster incorporation of stock-specific information, and an increased contribution to price discovery by the smaller exchange. Liquidity worsens for large caps due to increased sniping but improves for mid caps due to fast liquidity provision. Trading volume on the smaller exchange declines across all stocks. We thus uncover nuanced effects of fast trader participation that depend on their prior involvement.

Keywords: Latency, Market Fragmentation, Arbitrage, Liquidity, Price Efficiency, High-Frequency Trading JEL classification: G10

Suggested Citation

Sagade, Satchit and Scharnowski, Stefan and Theissen, Erik and Westheide, Christian, A Tale of Two Cities – Inter-Market Latency and Fast-Trader Competition (July 10, 2024). SAFE Working Paper No. 430, Available at SSRN: https://ssrn.com/abstract=3475442 or http://dx.doi.org/10.2139/ssrn.3475442

Satchit Sagade (Contact Author)

Nasdaq, Inc. ( email )

Tullvaktsvägen 15
Stockholm, Stockholm 105 78
Sweden
+4684057967 (Phone)

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany
+49 176 72222 049 (Phone)

Stefan Scharnowski

University of Mannheim ( email )

Mannheim, 68161
Germany

Erik Theissen

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

Christian Westheide

University of Vienna - Department of Finance ( email )

Bruennerstrasse 72
Vienna, 1210
Austria

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