Sunshine Trading: Flashes of Trading Intent at the NASDAQ

Arbeitspapier

We use the introduction and the subsequent removal of the flash order facility (an actionable indication of interest, IOI) from the NASDAQ as a natural experiment to investigatethe impact of voluntary disclosure of trading intent on market quality. We find that flashorders significantly improve liquidity in the NASDAQ. In addition, overall market qualityimproves substantially when the flash functionality is introduced and deteriorates when it isremoved. One explanation for our findings is that flash orders are placed by less informedtraders and fulfill their role as an advertisement of uninformed liquidity needs. They successfully attract responses from liquidity providers immediately after the announcement isplaced, thus lowering the risk-bearing cost for the overall market. Our study is important inunderstanding the impact of voluntary disclosure, in guiding future market design choices,and in the current debate on dark pools and IOIs.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 12-141/IV/DSF47

Classification and Topics

• Classification: Wirtschaft ; General Financial Markets: General (includes Measurement and Data) ; Financial Institutions and Services: General ; Information and Market Efficiency; Event Studies; Insider Trading
• Subject: Actionable Indication of Interest (IOI) ; Flash orders ; High-frequency Trading ; Spekulation ; Marktliquidität ; Finanzmarktregulierung ; Aktienmarkt ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Skjeltorp, Johannes A. ; Sojli, Elvira ; Tham, Wing Wah
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/87355
• Last update: 10.03.2025, 11:45 AM CET