Why Trading Speed Matters: A Tale of Queue Rationing under Price Controls

• 成果类型: Article
• 署名作者: Yao, Chen; Ye, Mao
• 署名单位: Chinese University of Hong Kong; University of Illinois System; University of Illinois Urbana-Champaign; National Bureau of Economic Research
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhy002
• 发表日期: 2018
• 页码: 2157
• 关键词: STOCK SPLITS; MARKET

摘要

We show that queue rationing under price controls is one driver of high-frequency trading. Uniform tick sizes constrain price competition and create rents for liquidity provision, particularly for securities with lower prices. The time priority rule allocates rents to high-frequency traders (HFTs) because of their speed advantage. An increase in relative tick size, defined as uniform tick sizes divided by security prices, increases the fraction of liquidity provided by HFTs but harms liquidity. We find that the message-to-trade ratio is a poor cross-sectional proxy for HFTs' liquidity provision: stocks with more liquidity provided by HFTs have lower message-to-trade ratios.