Latency delays — known as “speed bumps” — slow the execution of orders at an exchange, often to protect market makers against latency arbitrage. We study informed trading in a fragmented market, where one exchange introduces a latency delay on market orders. While liquidity improves at...

We analyze trading dynamics as successive high-frequency trading (HFT) firms begin to trade stocks in an equity market. Entrants compete with incumbents for volume, and there is crowding out. Earlier entry is associated with larger effects. After Passive HFT entry, incumbent spreads tighten....

Theory on high-frequency traders (HFT) predicts that market liquidity for a security decreases in the number of HFT trading the security. We test this prediction by studying a new Canadian stock exchange, Alpha, that experienced the entry of 11 HFT firms over four years. Bid-ask spreads on Alpha...

Using bond futures data, we test whether high-frequency trading (HFT) is engaging in back running, a trading strategy that can create costs for financial institutions. We reject the hypothesis of back running and find instead that HFT mildly improves trading costs for institutions. After a rapid...

We document low cross-sectional correlations between high-frequency market maker (MM) inventory positions, suggesting poor risk sharing. Using a unique data set on Canadian futures markets, a simple inventory cost estimate is 300% above the optimal benchmark. Our model explains how heterogeneity...