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Sunshine trading: Flashes of trading intent at the NASDAQ

  • Johannes A. Skjeltorp

    ()

    (Norges Bank (Central Bank of Norway))

  • Elvira Sojli

    ()

    (Erasmus University and Duisenberg School of Finance)

  • Wing Wah Tham

    (Erasmus University)

We use the introduction and the subsequent removal of the flash order facility (an actionable indication of interest, IOI) from Nasdaq as a natural experiment to investigate the impact of voluntary disclosure of trading intent on market quality. We find that flash orders significantly improve liquidity in Nasdaq. In addition overall market quality improves substantially when the flash functionality is introduced and deteriorates when it is removed.

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File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2011/WP-201117/
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Paper provided by Norges Bank in its series Working Paper with number 2011/17.

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Length: 59 pages
Date of creation: 15 Dec 2011
Date of revision:
Handle: RePEc:bno:worpap:2011_17
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  1. Biais, Bruno & Hillion, Pierre & Spatt, Chester, 1995. " An Empirical Analysis of the Limit Order Book and the Order Flow in the Paris Bourse," Journal of Finance, American Finance Association, vol. 50(5), pages 1655-89, December.
  2. Sugato Chakravarty & Craig Holden, 2002. "An Integrated Model of Market and Limit Orders," Finance 0201004, EconWPA.
  3. Bessembinder, Hendrik & Maxwell, William & Venkataraman, Kumar, 2006. "Market transparency, liquidity externalities, and institutional trading costs in corporate bonds," Journal of Financial Economics, Elsevier, vol. 82(2), pages 251-288, November.
  4. Bessembinder, Hendrik & Venkataraman, Kumar, 2004. "Does an electronic stock exchange need an upstairs market?," Journal of Financial Economics, Elsevier, vol. 73(1), pages 3-36, July.
  5. Sabrina Buti & Barbara Rindi & Ingrid M. Werner, 2011. "Dark Pool Trading Strategies," Working Papers 421, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  6. Schoeneborn, Torsten & Schied, Alexander, 2007. "Liquidation in the Face of Adversity: Stealth Vs. Sunshine Trading, Predatory Trading Vs. Liquidity Provision," MPRA Paper 5548, University Library of Munich, Germany.
  7. Ekkehart Boehmer & Gideon Saar & Lei Yu, 2005. "Lifting the Veil: An Analysis of Pre-trade Transparency at the NYSE," Journal of Finance, American Finance Association, vol. 60(2), pages 783-815, 04.
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