Coming Early to the Party
63 Pages Posted: 18 Jun 2020
Date Written: June 1, 2020
We examine the strategic behavior of High Frequency Traders (HFTs) during the pre-opening phase and the opening auction of the NYSE-Euronext Paris exchange. HFTs actively participate, and profitably extract information from the order flow. They also post “flash crash” orders, to gain time priority. They make profits on their last-second orders; however, so do others, suggesting that there is no speed advantage. HFTs lead price discovery, and neither harm nor improve liquidity. They “come early to the party”, and enjoy it (make profits); however, they also help others enjoy the party (improve market quality) and do not have privileges (their speed advantage is not crucial).
Keywords: High-Frequency Traders (HFTs), Proprietary Trading, Opening Auction, Liquidity Provision, Price Discovery
JEL Classification: G12, G14
Suggested Citation: Suggested Citation