EPTA Data & Studies

Collected academic and industry studies, statements and data on issues of modern market structure.


Catching a falling knife: an analysis of circuit breakers in UK equity markets 

This report by the UK’s Financial Conduct Authority examines the role of circuit breakers in UK equity markets and how they can halt trading during periods of abnormal volatility. Using a selection of examples, the report examines how circuit breakers work and the impact they can have on markets before, during and after a circuit break is triggered. It also looks at how market participants behave during these events.

Author: Financial Conduct Authority 

Published: August 2017


Aggregate market quality implications of dark trading

This Occasional Paper from the UK’s Financial Conduct Authority analyses the impact of dark trading on aggregate market quality in the UK. The study is the most comprehensive examination to date of dark trading in Europe, the FCA says, as it explores dark trading across all the major trading venues in the UK. The Paper finds that, at current levels, dark trading does not appear to be harmful to market quality in the aggregate UK equity market. The results do imply, the Paper says, that there is a threshold at which dark trading may start to negatively affect market quality. It is a companion to the FCA’s Insight article Dark trading and market quality

Author: Financial Conduct Authority 

Published: August 2017


The sterling ‘flash event‘ of 7 October 2016

This report by the Bank for International Settlements (BIS) examines the Sterling Flash Crash of October 2016. Drawing on analysis from the Bank of England, as well as information from the BIS Markets Committee, the analysis points to ‘a confluence of factors catalysing the move, rather than to a single clear driver.’ The report also finds that the time of day was a significant factor in increasing the vulnerability of the Sterling Foreign Exchange market. It notes that events such as this have been short lived and have not significantly impacted financial stability. 

Author: BIS

Published: January 2017


Gauging market dynamics using trade repository data:  the case of the Swissfranc de-pegging

This report by the Bank of England looks at the market impacts of the decision by the Swiss National Bank to discontinue the Swiss franc’s floor of 1.20 Swiss francs per euro. The report examines the effects of the move on the market in the short and long term. In the short term, it found that the removal of the floor led to extreme price moves. It found evidence that the “rapid intraday price fluctuation was associated with poor underlying market liquidity conditions.” In the longer term, it found a reduced level of liquidity, associated with an increased level of market fragmentation and higher market volatility.

Author: Bank of England

Published: January 2017


Working Paper Series: The stock market effects of a securities transaction tax: quasiexperimental evidence from Italy

This working paper by the ECB focuses on the impact of the Financial Transaction Tax (FTT)/Security Transaction Tax (STT) on Italian markets. The paper finds the FTT in Italy has impacted negatively on the markets. The study explains that "overall the introduction of the STT induced a reduction in liquidity for the stocks hit by the reform. We also find some evidence that volatility of the "treated" stocks increased." The study also finds that the introduction of FTT has led to a wider bid-ask spread. It notes that there was insufficient empirical data to make a full assessment of the effects of the tax on OTC markets.

Author: ECB

Published: August 2016


A case analysis of critiques on high-frequency trading

In this report the AFM looked at two often expressed critiques of HFT: that HFT is accused of ghost liquidity and that HFT strategies can make riskless profits at the expense of investors. For the first part of the report, the AFM found that ‘underlying trading patterns are a logical consequence of the application of market making strategies in a fragmented marketplace.’ For the second part of its report, the AFM, having analysed large orders at several venues, could not find any evidence to support that HFT make unfair profits at the expense of investors. They say ‘we did not find any evidence of HFT executing the liquidity detection strategy in our case studies.’

Author: AFM

Published: June 2016


The Economics of High-Frequency Trading: Taking Stock

In this report, Menkveld states that HFTs ‘helped us migrate quickly to electronic trading which, in turn, yielded lower transaction cost and more volume’ and that being well-informed they become market makers. He also concludes that HFTs provide venue competition with more innovation and lower trading costs. Overall, Menkveld says that ‘bottom line: I believe economic benefits outweigh costs’ and outlining what he believes are the three main benefits of HFTs which are ‘market making, venue competition, more trading opportunities.’

Author: Albert J. Menkveld

Published: June 2016


Order duplication and liquidity measurement in EU equity markets

This report focuses on the change in the trading landscape of equity markets over the last decade. The study used unique data collected by ESMA and covers a sample of 100 stocks on 12 trading venues in nine EU countries. The study found that order duplication, used by traders to ensure execution across multiple trading venues, contributes positively to liquidity. It concludes that that overall multi-venue trading has increased the liquidity in EU equity markets.

Author: ESMA

Published: June 2016


BIS Working Papers, No. 563. Who supplies liquidity, how and when?

This paper looks at who provides liquidity in the limit order books, by using data from Euronext and the AMF to observe how traders and the market connect. Their research found that liquidity supply by proprietary traders ‘does not evaporate when it is most needed.’ It found that proprietary traders, fast or slow, provide liquidity with contrarian marketable orders, thus helping the market to absorb shocks, even during a crisis. It also concludes that market reforms may have negative consequences, stating that: ‘new banking regulations, making it more difficult and costly for banks to engage in proprietary trading, might also reduce market liquidity.’

Author: BIS

Published: May 2016


Report on algorithm trading on NASDAQ Copenhagen 

Algorithms have improved liquidity in securities trading at Nasdaq Copenhagen with no evidence of increased price volatility or flash crashes caused by erroneous programming, according to the Danish FSA in its report. “The widespread use of computerized trading looks, according to our research, to have resulted in improved liquidity in the market. There is no evidence of greater risk for example, from greater fluctuations in prices as a result of algorithm trading.”  Algorithms were found to account for 50% of all trading with high frequency trading amounting to 15% of total volume. The FSA found no evidence of market abuse by algorithm-based trading strategies.  

Author: FSA, Denmark

Published: February 2016


Are high-frequency traders anticipating the order flow? Cross-venue evidence from the UK market

High-frequency traders (HFTs) have received a mixed reaction from academics and practitioners with some people underlining their role as liquidity providers and others highlighting the problems that they could bring to the market. A specific allegation that has been made is that by exploiting their speed advantage, HFTs can predict when orders are going to arrive at different trading venues and trade in advance of slower traders. Using order book data from the UK equity market, the FCA investigated this specific allegation by looking for patterns compatible with HFTs anticipating the order flow of other participants on lit venues. 

Author: FCA

Published: April 2016


Working Paper No. 523 Interactions among high-frequency traders

This paper examines the interactions between different HFTs and the impact of such interactions on price discovery. The study finds that correlated trading by HFT firms are associated with permanent price impact but that it is information based and that firms are ‘reacting simultaneously and quickly to new information as it arrives at the market place, which makes prices more efficient.’ The paper also found that correlated trading by HFT firms ‘does not appear to contribute to undue price pressure and price dislocations on a systematic basis in the UK equity market.’ The paper also states that commonality among the trading strategies of algorithmic trades in the foreign exchange market does not create ‘price pressures and excess volatility that would be detrimental to market quality.’    

Author: Bank of England

Published: February 2015


Fair and Effective Markets Review - BlackRock Responds

How fair and effective are the fixed income, foreign exchange and commodities markets?

Author: BlackRock

Published: January 2015

Fact Statement on High Frequency Trading

The impact of “high frequency trading” or “HFT” on U.S. equity markets has generated significant attention in recent years and increasingly in the last few months. Although HFT strategies now execute approximately 50% of the volume in U.S. - listed equities, there is still a limited understanding of how these strategies work in practice. Through this report, the Committee on Capital Markets Regulation seeks to shed further light on HFT to inform public debate and form a basis for future policy reforms.

Author: Committee on Capital Markets Regulation

Published: 29 December 2014


Shades of Darkness: A Pecking Order of Trading Venues

Investors trade in various types of venues. When demanding immediacy, they trade off price impact and execution uncertainty. The “pecking order” hypothesis (POH) states that investors rank venues accordingly, with low-cost-low-immediacy venues on top and high-cost-high-immediacy venues at the bottom. Hence, midpoint dark pools on top, non-midpoint pools in the middle, and lit markets at the bottom. When urgency increases, investors tilt their flow from top to bottom. We document such pattern for U.S. data, confirming POH. A simple model obtains POH in equilibrium and suggests that the availability of dark pools reduces investor (utility) cost by $1.43 billion annually.

Author: Albert J. Menkveld, Bart Z. Yueshen, Haoxiang Zhu

Published: 23 December 2014


High-Frequency Trading and Extreme Price Movements

This paper examines the relation between high-frequency trading (HFT) and extreme price movements (jumps). Some market observers allege that HFT causes and exacerbates price jumps thus contributing to market instability. Contrary to these allegations, we find that during extreme price movements high-frequency traders act as net liquidity suppliers, while non-high-frequency traders act as net liquidity demanders. Moreover, high-frequency traders are particularly active providing liquidity during price jumps that result in permanent price changes, absorbing the most informed order flow. Our evidence is consistent with HFT performing a stabilizing function in modern markets.

Author: Jonathan Brogaard, Ryan Riordan, Andriy Shkilko, Konstanin Sokolov

Date: 26 November 2014


Market Integration and High Frequency Intermediation

We study the intersection of the literatures on HFT and fragmentation to help understand the role HFT have in enhancing or harming market quality via market integration/ fragmentation. This includes examining several topics related to cross-market behavior of HFT including: (a) their role in cross-market liquidity; (b) multi-market risk (inventory) management; and (c) information transmission across exchanges. Our goal is tofulfill IIROC's desire to better understand how HFT firms affect overall market quality and other investors through their integrated market activity. Early results show HFT are integral in tying markets together.

Author: Jonathan Brogaard,Terrence Hendershott, Ryan Riordan

Published: November 2014


High-frequency Trading: Investor Issues and Perspectives

CFA Institute staff have tracked the evolution of high-frequency trading (HFT) in global capital markets over the last five years, with a view toward understanding potential impacts on market integrity and efficiency, to avoid potential unintended consequences,as well as to inform our perspectives on public policy and regulatory initiatives.

Author: CFA Institute

Date: April 2014


Market Integrity Insights Blog

Views on the integrity of the global capital markets.

Author: CFA Institute


High Frequency Trading and Price Discovery

A working paper published by the European Central Bank

The authors find that high-frequency traders facilitate price efficiency by trading in the direction of permanent price changes and in the opposite direction of transitory pricing errors, both on average and on the highest volatility days. This is done through their liquidity demanding orders. In contrast, HFTs’ liquidity supplying orders are adversely selected. The direction of buying and selling by HFTs predicts price changes over short horizons measured in seconds. The direction of HFTs’ trading is correlated with public information, such as macro news announcements, market-wide price movements, and limit order book imbalances.

Date: November 2013


High-frequency trading behaviour and its impact on market quality: evidence from the UK equity market

We analyse the intraday behaviour of high-frequency traders (HFTs) and its impact on aspects of market quality such as liquidity, price discovery and excess volatility.

Author: Evangelos Benos and Satchit Sagade

Date: December 2012

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