The Quote Exception Rule: Giving High Frequency Traders an Unintended

The Quote Exception Rule: Giving High Frequency Traders an Unintended

Under the Securities and Exchange Commission (SEC) Rule 611 exchanges that have not matched a new National Best Bid and Offer (NBBO) can trade at the old NBBO for one second. In 2008, this rule allowed fast traders to earn estimated revenues of $233 million at the expense of slow traders. Furthermor...

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Veröffentlicht in:Financial management 2013-10, Vol.42 (3), p.481-501
Hauptverfasser: McInish, Thomas H, Upson, James
Format: Artikel
Sprache:eng
Schlagworte:
Estimation
Financial management
High frequency trading
Liquidity
Market analysis
Prices
Regulation
SEC regulations
Stock exchanges
Studies
Traders
U.S.A
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Zusammenfassung:Under the Securities and Exchange Commission (SEC) Rule 611 exchanges that have not matched a new National Best Bid and Offer (NBBO) can trade at the old NBBO for one second. In 2008, this rule allowed fast traders to earn estimated revenues of $233 million at the expense of slow traders. Furthermore, we find that when the NYSE decreased latency by 600 milliseconds on March 10, 2008, execution quality improved markedly for fast liquidity demanders, but improved only minimally for slow liquidity demanders. However, we find a decrease in volume executed at adverse prices under the faster market conditions. [PUBLICATION ABSTRACT]
ISSN:0046-3892
1755-053X