High-Frequency Traders and Single-Dealer Platforms

57 Pages Posted: 6 Jan 2021 Last revised: 24 Nov 2021

See all articles by Fatemeh Aramian

Fatemeh Aramian

Stockholm University-Stockholm Business School

Lars L. Norden

Stockholm University - Stockholm Business School

Date Written: November 29, 2020

Abstract

High-frequency traders (HFTs) mainly operate on public exchanges, where multiple third-party buying and selling interests interact with each other. Following recent European regulatory changes (Markets in Financial Instruments Directive II), HFT single-dealer platforms have emerged on which HFTs conduct bilateral trading as dealers. We find that trading on HFT dealer platforms is detrimental to liquidity on public stock exchanges. HFTs manage inventory imbalances from their dealer operations by trading more aggressively and reducing their liquidity supply on exchanges, which harms liquidity.

Keywords: High-Frequency Traders, Dealers, Liquidity, Inventory Management

JEL Classification: G12, G14, G15, L10

Suggested Citation

Aramian, Fatemeh and Nordén, Lars L., High-Frequency Traders and Single-Dealer Platforms (November 29, 2020). Available at SSRN: https://ssrn.com/abstract=3738608 or http://dx.doi.org/10.2139/ssrn.3738608

Fatemeh Aramian

Stockholm University-Stockholm Business School ( email )

Kräftriket 3
Stockholm, 11419
Sweden

Lars L. Nordén (Contact Author)

Stockholm University - Stockholm Business School ( email )

Sweden

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