NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Robert P. Bartlett, III

890 Simon Hall
University of California, Berkeley
Berkeley, CA 94720

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org

NBER Working Papers and Publications

August 2016How Rigged Are Stock Markets?: Evidence From Microsecond Timestamps
with Justin McCrary: w22551
We use new timestamp data from the two Securities Information Processors (SIPs) to examine SIP reporting latencies for quote and trade reports. Reporting latencies average 1.13 milliseconds for quotes and 22.84 milliseconds for trades. Despite these latencies, liquidity-taking orders gain on average $0.0002 per share when priced at the SIP-reported national best bid or offer (NBBO) rather than the NBBO calculated using exchanges’ direct data feeds. Trading surrounding SIP-priced trades shows little evidence that fast traders initiate these liquidity-taking orders to pick-off stale quotes. These findings contradict claims that fast traders systematically exploit traders who transact at the SIP NBBO.
June 2015Dark Trading at the Midpoint: Pricing Rules, Order Flow, and High Frequency Liquidity Provision
with Justin McCrary: w21286
Using over eight trillion observations of market data, we use a regression discontinuity design to analyze the effect of increasing the minimum price variation (MPV) for quoting equity securities in light of recent proposals to increase the MPV from $0.01 to $0.05. We show that a larger MPV encourages investors to trade in dark venues at the midpoint of the national best bid and offer. Enhanced order flow to dark venues reduces price competition by exchange liquidity providers, especially those using high frequency trading (HFT). Trading in dark venues due to a wider MPV reduces volatility and increases trading volume.
 
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