Does the Prohibition of Trade-Through Hurt Liquidity Demanders?

• 成果类型: Article
• 署名作者: Chen, Ningyuan; Gao, Pin; Kou, Steven
• 署名单位: University of Toronto; The Chinese University of Hong Kong, Shenzhen; Shenzhen Institute of Artificial Intelligence & Robotics for Society; Boston University
• 刊物名称: OPERATIONS RESEARCH
• ISSN/ISSBN: 0030-364X
• DOI: 10.1287/opre.2023.2454
• 发表日期: 2023
• 页码: 1458-1471
• 关键词: limit order book; MARKET; COMPETITION; Resiliency; execution; exchange; FLOW

摘要

The order protect rule (OPR) in the United States generally prohibits any trade through, that is, a market order that is not executed at the best possible price among fast (electronic and automated) trading venues. By deriving upper and lower bounds for the difference in the execution costs in a dynamic model, we find that, although trade-through allows for flexible trading strategies and may benefit the liquidity demander, the benefit is insignificant in most cases, especially for small trades and stocks with fast resilience. Therefore, considering other benefits of the OPR studied in the literature, this study supports the regulation and suggests that the current separate regulations for fast and slow venues may be extended to differentiate stocks with fast and slow resilience speeds.