Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/312376 
Year of Publication: 
2022
Citation: 
[Journal:] Business & Information Systems Engineering [ISSN:] 1867-0202 [Volume:] 65 [Issue:] 1 [Publisher:] Springer Fachmedien Wiesbaden GmbH [Place:] Wiesbaden [Year:] 2022 [Pages:] 7-24
Publisher: 
Springer Fachmedien Wiesbaden GmbH, Wiesbaden
Abstract: 
High-frequency traders account for a significant part of overall price formation and liquidity provision in modern securities markets. In order to react within microseconds, high-frequency traders depend on specialized low latency infrastructure and fast connections to exchanges, which require significant IT investments. The paper investigates a technical failure of this infrastructure at a major exchange that prevents high-frequency traders from trading at low latency. This event provides a unique opportunity to analyze the impact of high-frequency trading on securities markets. The analysis clearly shows that although the impact on trading volume and the number of trades is marginal, the effects on liquidity and to a lesser extent on price volatility are substantial when high-frequency trading is interrupted. Thus, investments in high-frequency trading technology provide positive economic spillovers to the overall market since they reduce transaction costs not only for those who invest in this technology but for all market participants by enhancing the quality of securities markets.
Subjects: 
High-frequency trading
Market quality
Securities markets
IT spillover
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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