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Latency reduction and market quality: The case of the Australian Stock Exchange

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  • Murray, Hamish
  • Pham, Thu Phuong
  • Singh, Harminder

Abstract

This study investigates the role of latency in market quality in the Australia Securities Exchange following the introduction of the Integrated Trading Platform (ITS) and ASXTrade. We find that the reduction in system latency from 70ms to 30ms (ITS) improved liquidity. However, the lower latency has not had a long-lasting downward effect on spreads, as there was no discernible reduction in trading costs when institutional traders already had access to lower-latency co-locations. We contribute to the literature by reporting that low latency improves market liquidity, but privileged participants that have access to trading information prior to others may induce greater information asymmetry and adverse selection.

Suggested Citation

  • Murray, Hamish & Pham, Thu Phuong & Singh, Harminder, 2016. "Latency reduction and market quality: The case of the Australian Stock Exchange," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 257-265.
    • Handle: RePEc:eee:finana:v:46:y:2016:i:c:p:257-265
    DOI: 10.1016/j.irfa.2015.09.001
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    Cited by:

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    3. Zhou, Hao & Kalev, Petko S., 2019. "Algorithmic and high frequency trading in Asia-Pacific, now and the future," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 186-207.
    4. Zhou, Hao & Kalev, Petko S. & Frino, Alex, 2020. "Algorithmic trading in turbulent markets," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).

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    More about this item

    Keywords

    Latency; Spreads; ASXTrade; ITS; Market liquidity;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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