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Order Protection Through Delayed Messaging

Aldrich, Eric M and Friedman, Daniel (2022) 'Order Protection Through Delayed Messaging.' Management Science. ISSN 0025-1909

AF2022ManSci.pdf - Accepted Version

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Several financial exchanges (e.g., IEX and NYSE American) recently introduced messaging delays to protect ordinary investors from high-frequency traders who exploit stale orders. To capture the impact of such delays, we propose a simple parametric model of the continuous double auction market format. The model examines the dynamics of midpoint pegged order queues and finds their steady states. It shows how messaging delays can protect pegged orders and improve investor welfare, but typically increase queuing costs. Recently available field data show that the empirical distribution of queued pegged orders is highly leptokurtotic and resembles the discrete Laplace distribution predicted by the model.

Item Type: Article
Divisions: Faculty of Social Sciences > Economics, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 22 Mar 2022 14:20
Last Modified: 22 Mar 2022 14:20

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