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How Effective are the Order-to-Trade Ratio and Resting Time Regulations?

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  • Viktoria Dalko
  • Michael H Wang

Abstract

The purpose of this paper is to assess the order-to-trade ratio (OTR) and resting time (RT) regulations that aim to contain order-based manipulative high-frequency trading (HFT). The paper examines the mechanism of limit order display and uses spoofing as one typical order-based manipulative scheme as the basis for assessment. The examination provides a theoretical foundation for the assessment of the OTR and RT regulations. The paper finds that order-based manipulation is the foundation of manipulative HFT tactics that take advantage of the incomplete display of limit order history by the stock exchange. Regarding deterrence of spoofing, the RT regulation is more effective than the OTR regulation, as the former creates uncertainty regarding spoof orders.

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  • Viktoria Dalko & Michael H Wang, 2018. "How Effective are the Order-to-Trade Ratio and Resting Time Regulations?," Journal of Financial Regulation, Oxford University Press, vol. 4(2), pages 321-325.
    • Handle: RePEc:oup:refreg:v:4:y:2018:i:2:p:321-325.
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    File URL: http://hdl.handle.net/10.1093/jfr/fjy007
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    Cited by:

    1. Xihan Xiong & Zhipeng Wang & Tianxiang Cui & William Knottenbelt & Michael Huth, 2023. "Market Misconduct in Decentralized Finance (DeFi): Analysis, Regulatory Challenges and Policy Implications," Papers 2311.17715, arXiv.org, revised Mar 2024.

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