Premium
The Impact of Co‐Location of Securities Exchanges' and Traders' Computer Servers on Market Liquidity
Author(s) -
Frino Alex,
Mollica Vito,
Webb Robert I.
Publication year - 2014
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.21631
Subject(s) - market liquidity , high frequency trading , market maker , futures contract , futures market , business , market impact , server , flash trading , electronic trading , monetary economics , trading turret , open outcry , algorithmic trading , dark liquidity , commerce , market microstructure , economics , alternative trading system , finance , order (exchange) , computer science , geography , world wide web , stock market , context (archaeology) , archaeology
This study examines the impact of allowing traders to co‐locate their servers near exchange servers on the liquidity of futures contracts traded on the Australian Securities Exchange. It provides evidence of an increase in proxies for high‐frequency trading activity following the introduction of co‐location. There is strong evidence of a decrease in bid–ask spreads and an increase in market depth after the introduction of co‐location. We conclude that the introduction of co‐location enhances liquidity. We conjecture that co‐location improves the efficiency with which liquidity providers (including market maker high‐frequency traders) are able to make markets. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark 34:20–33, 2014