Competing on speed

Competing on speed

We analyze trading speed and fragmentation in asset markets. In our model, trading venues make technological investments and compete for investors who choose where and how much to trade. Faster venues charge higher fees and attract speed-sensitive investors. Competition among venues increases invest...

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Bibliographic Details
Main Authors: PAGNOTTA, Emiliano Sebastian, PHILIPPON, Thomas
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2018
Subjects:
Trading speed
exchanges
liquidity
fragmentation
segmentation
vertical differentiation
search
high-frequency trading
regulation
trade-through rule
investor participation
entry
Finance and Financial Management
Portfolio and Security Analysis
Online Access:https://ink.library.smu.edu.sg/lkcsb_research/7028
https://ink.library.smu.edu.sg/context/lkcsb_research/article/8027/viewcontent/2018_Pagnotta_Competing_on_Speed_pv.pdf
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Institution: Singapore Management University
Language: English
Description
Summary:We analyze trading speed and fragmentation in asset markets. In our model, trading venues make technological investments and compete for investors who choose where and how much to trade. Faster venues charge higher fees and attract speed-sensitive investors. Competition among venues increases investor participation, trading volume, and allocative efficiency, but entry and fragmentation can be excessive, and speeds are generically inefficient. Regulations that protect transaction prices (e.g., Securities and Exchange Commission trade-through rule) lead to greater fragmentation. Our model sheds light on the experience of European and U.S. markets since the implementation of Markets in Financial Instruments Directive and Regulation National Markets System.

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