The market quality effects of sub-second frequent batch auctions:  Evidence from dark trading restrictions.

Zeyu Zhang; Gbenga Ibikunle

doi:10.1016/j.irfa.2023.102737

The market quality effects of sub-second frequent batch auctions: Evidence from dark trading restrictions.

Zeyu Zhang, Gbenga Ibikunle^*

^*Corresponding author for this work

Accountancy & Finance, Finance

University of Edinburgh

Research output: Contribution to journal › Article › peer-review

Abstract

Recent European regulatory restrictions on dark trading induced an increase in sub-second frequent batch/periodic auctions (PA). We exploit this development to investigate the effects of PA on market quality. The restrictions are linked to an observable increase in PA and an economically meaningful loss of liquidity. PA is also associated with a significant decline in liquidity and informational efficiency. However, consistent with Budish et al. (2015 – The Quarterly Journal of Economics, 130, 1547), increased execution via PA leads to a decline in adverse selection costs, which underscores its potential as a trading mechanism for addressing latency arbitrage and the technological arms race.

Original language	English
Article number	102737
Number of pages	18
Journal	International Review of Financial Analysis
Volume	89
Early online date	6 Jul 2023
DOIs	https://doi.org/10.1016/j.irfa.2023.102737
Publication status	Published - Oct 2023

Data Availability Statement

The authors do not have permission to share data.

Access to Document

10.1016/j.irfa.2023.102737Licence: CC BY

Zhang_etIbkunle_IRFA_The_Market_Quality_VOR
This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/)
Final published version, 0.99 MBLicence: CC BY

Cite this

@article{4b5e393c1f1747d6a69cc597c34a6562,

title = "The market quality effects of sub-second frequent batch auctions: Evidence from dark trading restrictions.",

abstract = "Recent European regulatory restrictions on dark trading induced an increase in sub-second frequent batch/periodic auctions (PA). We exploit this development to investigate the effects of PA on market quality. The restrictions are linked to an observable increase in PA and an economically meaningful loss of liquidity. PA is also associated with a significant decline in liquidity and informational efficiency. However, consistent with Budish et al. (2015 – The Quarterly Journal of Economics, 130, 1547), increased execution via PA leads to a decline in adverse selection costs, which underscores its potential as a trading mechanism for addressing latency arbitrage and the technological arms race.",

author = "Zeyu Zhang and Gbenga Ibikunle",

year = "2023",

month = oct,

doi = "10.1016/j.irfa.2023.102737",

language = "English",

volume = "89",

journal = "International Review of Financial Analysis",

issn = "1057-5219",

publisher = "Elsevier Inc.",

}

TY - JOUR

T1 - The market quality effects of sub-second frequent batch auctions

T2 - Evidence from dark trading restrictions.

AU - Zhang, Zeyu

AU - Ibikunle, Gbenga

PY - 2023/10

Y1 - 2023/10

N2 - Recent European regulatory restrictions on dark trading induced an increase in sub-second frequent batch/periodic auctions (PA). We exploit this development to investigate the effects of PA on market quality. The restrictions are linked to an observable increase in PA and an economically meaningful loss of liquidity. PA is also associated with a significant decline in liquidity and informational efficiency. However, consistent with Budish et al. (2015 – The Quarterly Journal of Economics, 130, 1547), increased execution via PA leads to a decline in adverse selection costs, which underscores its potential as a trading mechanism for addressing latency arbitrage and the technological arms race.

AB - Recent European regulatory restrictions on dark trading induced an increase in sub-second frequent batch/periodic auctions (PA). We exploit this development to investigate the effects of PA on market quality. The restrictions are linked to an observable increase in PA and an economically meaningful loss of liquidity. PA is also associated with a significant decline in liquidity and informational efficiency. However, consistent with Budish et al. (2015 – The Quarterly Journal of Economics, 130, 1547), increased execution via PA leads to a decline in adverse selection costs, which underscores its potential as a trading mechanism for addressing latency arbitrage and the technological arms race.

U2 - 10.1016/j.irfa.2023.102737

DO - 10.1016/j.irfa.2023.102737

M3 - Article

SN - 1057-5219

VL - 89

JO - International Review of Financial Analysis

JF - International Review of Financial Analysis

M1 - 102737

ER -

The market quality effects of sub-second frequent batch auctions: Evidence from dark trading restrictions.

Abstract

Data Availability Statement

Access to Document

Fingerprint

Cite this