Latency Arbitrage and Frequent Batch Auctions

We investigate the relationship between latency arbitrage and trading via frequent batch auctions (FBA). We show that increases in single and cross-market latency arbitrage opportunities (LAOs) are linked to an economically meaningful increase in FBA activity, which implies that slower traders view trading in FBA as an effective strategy to avoid being adversely selected on speed by high-frequency trading snipers. This effect is consistent irrespective of whether LAOs are toxic or not; however, they vary in their magnitude by LAOduration. Shorter durations are linked to progressively more severe shifts in trading activity from continuous lit trading to FBA