'Sniping' in Fragmented Markets

46 Pages Posted: 20 May 2020

See all articles by Katya Malinova

Katya Malinova

McMaster University - Michael G. DeGroote School of Business

Andreas Park

University of Toronto; University of Toronto - Finance Area

Date Written: April 23, 2020

Abstract

In many jurisdictions, equity market regulation requires traders to honor the best quotes on all marketplaces, often forcing brokers to split client trades across multiple markets.Markets react strongly: we show that such split trades have double the price impact of single-market trades. The effect extends to retail orders and cannot be explained by order size. It is, however, concentrated among orders that are immediately followed by aggressive actions from other traders. A group of fourteen traders accounts for most of these follow-on trades. Using a market organization change that exogenously curtailed these fast traders' ability to react, we provide evidence that these "snipers" actions trigger an excess price impact.

Keywords: Sniping, Microstructure, High-Frequency Trading, Market Making

JEL Classification: G14

Suggested Citation

Malinova, Katya and Park, Andreas, 'Sniping' in Fragmented Markets (April 23, 2020). Available at SSRN: https://ssrn.com/abstract=3534367 or http://dx.doi.org/10.2139/ssrn.3534367

Katya Malinova

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Andreas Park (Contact Author)

University of Toronto ( email )

105 St George Street
Toronto, Ontario M5S 3G8
Canada

University of Toronto - Finance Area ( email )

Toronto, Ontario M5S 3E6
Canada

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