Keywords: Automated Trading; Algorithms; Limit Orders; Limit Order Design; Market Design.
JEL Codes: G14, G18, G19
학회소식
[2022년 5차 CAFM2022]An Algorithm to Prevent Being Picked Off by Algorithms: An Examination of IEX’s D-Limit Order Type∗
작성자 : 관리자
조회수 : 341
게시일 :
2022-12-20
We examine whether it is possible to reduce the adverse selection cost, the picking-off risk, that limit orders are exposed to by offering traders a bundle of a regular limit order and a built-in algorithmic dynamic order submission strategy. We focus on the introduction of IEX’s D-Limit order type which provides such a bundle and our results suggest that it has an economically significant impact on order submission behavior and market quality statistics. Comparing the two months before and after we find the IEX market share increase by 1.6 to 1.7 percentage points on a volume weighted basis for our sample of 927 stocks. We also find the time IEX is at the NBBO, NBB, or NBO increase dramatically, for the NBBO approximately tenfold increase. Using a matched sample approach we obtain estimates of the treatment effect for the introduction of D-Limit order type. We interpret our results, the increase in the effective spread and decrease in price impact, as supportive of the D-Limit order type offering a better choice. Our results are suggesting that the D-Limit order type is a successful limit order design incorporating a built-in algorithmically determined cancel and resubmit decision.
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