Quantifying the High-Frequency Trading "Arms Race"

We thank Andrew Bailey, Markus Baldauf, Fabio Braga, Peter Cramton, Karen Croxson, Sean Foley, Thierry Foucault, Joel Hasbrouck, Terrence Hendershott, Burton Hollifield, Stefan Hunt, Anil Kashyap, Pete Kyle, Robin Lee, Donald MacKenzie, Albert Menkveld, Paul Milgrom, Barry Munson, Brent Neiman, Lubos Pastor, Talis Putnins, Alvin Roth, Edwin Schooling Latter, Makoto Seta, John Shim and Mao Ye for helpful discussions. We thank the co-editor, Andrei Shleifer, and four anonymous referees for valuable comments and suggestions that greatly improved the paper. We are grateful to Matthew O'Keefe, Natalia Drozdoff, Jaume Vives, Jiahao Chen, and Zizhe Xia for extraordinary research assistance. We thank virtual seminar audiences at the University of Chicago, the Microstructure Exchange, the SFS Cavalcade, the WFAs, Microstructure Asia-Pacific, the EFAs, the Virtual Finance Theory Seminar, Stevens, Stanford, IEX, the AFAs, Informs Market Design, Berkeley, the Swiss Finance Institute, and the Bank of International Settlements. Budish thanks the Fama-Miller Center, Initiative on Global Markets, Stigler Center and Dean's Office at Chicago Booth for funding. This paper circulated in January 2020 as a Financial Conduct Authority Occasional Paper, which is the FCA's working paper series. While Occasional Papers do not necessarily represent the position of the FCA, they are one source of evidence that the FCA may use while discharging its functions and to inform its views. The views expressed in this paper are those of the authors and not necessarily those of the Financial Stability Board and/or its members, nor of the National Bureau of Economic Research. Any errors and omissions are the authors' own. The authors declare that they have no relevant or material financial interests that relate to the research described in this paper.

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