Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87355
Authors: 
Skjeltorp, Johannes A.
Sojli, Elvira
Tham, Wing Wah
Year of Publication: 
2012
Series/Report no.: 
Tinbergen Institute Discussion Paper 12-141/IV/DSF47
Abstract: 
We use the introduction and the subsequent removal of the flash order facility (an actionable indication of interest, IOI) from the NASDAQ as a natural experiment to investigatethe impact of voluntary disclosure of trading intent on market quality. We find that flashorders significantly improve liquidity in the NASDAQ. In addition, overall market qualityimproves substantially when the flash functionality is introduced and deteriorates when it isremoved. One explanation for our findings is that flash orders are placed by less informedtraders and fulfill their role as an advertisement of uninformed liquidity needs. They successfully attract responses from liquidity providers immediately after the announcement isplaced, thus lowering the risk-bearing cost for the overall market. Our study is important inunderstanding the impact of voluntary disclosure, in guiding future market design choices,and in the current debate on dark pools and IOIs.
Subjects: 
Actionable Indication of Interest (IOI)
Flash orders
High-frequency Trading
JEL: 
G10
G20
G14
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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