Do "speed bumps" prevent accidents in financial markets?
- Is it true that speed bumps level the playing field, make financial markets more stable and reduce negative externalities of high-frequency trading (HFT) firms? We examine how the implementation of a particular speed bump – Midpoint Extended Life order (M-ELO) on Nasdaq impacted financial markets stability in terms of occurrences of mini-flash crashes in individual securities. We use high-frequency order book message data around the implementation date and apply difference-in-differences analysis to estimate the average treatment effect of the speed bump on market stability and liquidity provision. The results suggest that the introduction of the M-ELO decreases the average number of crashes on Nasdaq compared to other exchanges by 4.7%. Liquidity provision by HFT firms also improves. These findings imply that technology-based solutions by exchanges are feasible alternatives to regulatory intervention towards safer markets.
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| Author: | Jorge GonçalvesGND, Roman KräusslORCiDGND, Vladimir Levin |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-515971 |
| URL: | https://ssrn.com/abstract=3478856 |
| Parent Title (English): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 636 |
| Series (Serial Number): | CFS working paper series (636) |
| Publisher: | Center for Financial Studies |
| Place of publication: | Frankfurt, M. |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2019 |
| Year of first Publication: | 2019 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2019/11/04 |
| Tag: | Mini-flash crash; midpoint extended life order; speed bump |
| Issue: | This version - July 2019 |
| Page Number: | 32 |
| HeBIS-PPN: | 456513337 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| JEL-Classification: | C Mathematical and Quantitative Methods / C2 Single Equation Models; Single Variables / C21 Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions (Updated!) |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
