RT Journal Article
SR Electronic
T1 Phantom Liquidity and High-Frequency Quoting
JF The Journal of Trading
FD Institutional Investor Journals
SP 6
OP 15
DO 10.3905/jot.2016.11.3.006
VO 11
IS 3
A1 Jesse Blocher
A1 Rick Cooper
A1 Jonathan Seddon
A1 Ben Van Vliet
YR 2016
UL https://pm-research.com/content/11/3/6.abstract
AB This article examines every NASDAQ ITCH feed message for S&P 500 Index stocks for 2012 and identifies clusters of extremely high and extremely low limit-order cancellation activity. The authors find results consistent with the idea that cancel clusters are the result of high-frequency traders jockeying for queue position and reacting to information to establish a new price level. Furthermore, few trades seem to be executed during cancel clusters or even immediately after them. Low cancellation activity seems to be markedly different, with many level changes all caused by executions. The results are consistent with high-frequency trading firms behaving as agents who bring efficiency to the market without the need to have executions at intermediate prices. The authors also discuss the misconception that investors and low-frequency traders are synonymous and its implications for policy given these results.TOPICS: Legal/regulatory/public policy, quantitative methods