Cameron's Blog - Order Cancellation

Order Cancellation

Notes on Order Cancellation

Subrahmanyam, Zeng (2016)

Notes

  • HFT firms do not cancel orders more frequently than others, when you look at the top 50 price levels.
  • Uses 116 stocks on NASDAQ during Q1 2011.
  • HFT dominates cancellations at the top three price levels. Order executions are similar between HFT and non-HFT at approximately 50 price levels.
  • Median order rest time:
HFT 0.53 2.15 6.84
Non-HFT 3.02 3.47 4.48
Large Cap Mid Cap Small Cap
  • HFT firms strategically place liquidity farther from the top of the book ahead of volatility.
  • Liquidity provision is about balancing opportunity costs and adverse selection.

Hypotheses

  • We should expect that cancellations should be more informative when performed by HFT firms.
  • Cancellations should be more informative at the top of the book.

Questions

  1. How does each level of the orderbook impact cancellation informativeness?

Baldauf & Mollner (2018)

Notes

  • Presents a theory model covering HFT.
  • Order anticipation by HFT firms reduces the rents that an informed trader can take $\implies$ reduced incentives to generate information.
  • Higher speed, lower spreads and research intensity.
  • The authors propose delaying non-cancellation orders and frequent batch auctions.
  • They predict that frequent batch auctions improve cross-exchange coordination.

Hypotheses

NA

Questions

  • How do you extract trader type from order flow?