Kjell Jørgensen

Journal of financial markets 37(1) s. 1-16 Doi: https://doi.org/10.1016/j.finmar.2017.09.001

We investigate the effects of introducing a fee on excessive order-to-trade ratios (OTRs) on market quality at the Oslo Stock Exchange (OSE). We find that traders reacted to the regulation as measured OTRs fell. However, market quality, measured with depth, spreads, and realized volatility, remain largely unaffected. This result differs sharply from the experience in other markets, such as Italy and Canada, where similar regulatory changes have been accompanied by a worsening of liquidity. The unchanged market quality at the OSE is likely due to the different design of the regulation, which is tailored to encourage liquidity supply.

UiS Working Papers in Economics and Finance

We use the introduction of a cost on high message to trade ratios for traders at the Oslo Stock Exchange to investigate the effects on market quality and fragmentation of introduction of such ``speed bumps'' to equity trading. The exchange introduced a fee payable by market participants whose orders (messages to the exchange's trade system) exceeded seventy times the number of consummated trades. Market participants quickly adjusted their behavior to avoid paying the extra cost. The overall ratios of messages to trades fell, but common measures of the quality of trading, such as liquidity, transaction costs, and realized volatility, did not deteriorate, they were essentially unchanged. This is a policy intervention where we can match the treated sample (OSE listed stocks) with the same assets traded elsewhere. We can therefore do a ``diff in diff'' analysis of liquidity in Oslo compared with liquidity of the same asset traded on other exchanges. Surprisingly, we see that liquidity, as measured by the spread, deteriorated on alternative market places when the tax was introduced, a tax that is only valid for trading at the OSE. The spread is the only liquidity measure for which we observe this difference between the OSE and other markets, for depth and turnover we do not find any differences between other markets and the OSE.

Infiniti 2011

Gyldendal Akademisk