High Speed Equities Trading: 1993–20121. (8th January 2015)

• Record Type: Journal Article
• Authors: Stoll, Hans R.
• Is Part Of: Asia-Pacific journal of financial studies. Volume 43:Number 6(2014:Dec.)
• Page Start: 767
• Page End: 797
• Publication Date: 2015-01-08
• Subjects: Equities trading -- Liquidity -- Efficiency -- Bid‐ask spread -- Volatility -- Optimal trade size; Pacific Area -- Economic conditions -- Periodicals; Finance -- Asia -- Periodicals; Finance -- Pacific Area -- Periodicals; Asia -- Economic conditions -- Periodicals; 332.09505
• DOI: 10.1111/ajfs.12078
• Languages: English
• ISSNs: 2041-9945

Abstract

Abstract: High speed trading has drawn the attention of regulators who fear that such trading harms markets and leads to excessive speculation. The Flash Crash of May 6, 2010 is taken as evidence of the potential harmful effects of high frequency trading. On the other hand, some view high frequency trading as a manifestation of technological advances that have reduced the optimal trade size and improved order routing. From that perspective, high speed trading is a continuation of a long‐standing trend to more rapid and more efficient trading. This study shows that the speed of trading has changed dramatically. The average number of trades per day for large cap New York Stock Exchange stocks has risen from about 500 to more than 40 000 in the period 1993–2011. At the same time, the average trade size has fallen from 1600 shares to 200 shares. The ultimate sources of these changes are the technology that has automated almost all aspects of trading and the regulatory developments that have helped reduce bid‐ask spreads and made markets more accessible. The result of these developments is that markets are considerably more liquid and less costly. High frequency traders draw on this liquidity and also contribute to it.