Violations of Price-Time Priority and Implications for Market Quality
40 Pages Posted: 10 Jan 2020
Date Written: December 19, 2019
Using a proprietary dataset of a market maker’s limit orders and order acknowledgments timestamped to the nanosecond, we explore the consistency and reliability of an exchange’s price-time priority in practice. We find a high degree of variability in acknowledgment times, and we find that the proportion of times in which the first order entered is also first to be acknowledged is surprisingly low when consecutive orders are placed at very high frequencies. Furthermore, we provide suggestive evidence of impaired market quality in the form of: (i) excess messaging, and (ii) unabsorbed end-of-day order imbalance as a result.
Keywords: price/time priority; queuing uncertainty; high-frequency trading (HFT); excess messaging; order imbalance; market design; market microstructure
JEL Classification: G1; G2
Suggested Citation: Suggested Citation