Date of Award


Degree Type


Degree Name

Doctor of Philosophy (PhD)




Raja Velu


algorithmic trading, Market fragmentation, market microstructure

Subject Categories



In this dissertation, we study the effect of recent regulatory and technological changes on trading

dynamics. Advances in communication and computing technologies have made millisecond

latencies as the new trading standard and have resulted in a new era of automated trading. The

introduction of Reg-NMS (Regulation National Market System, implemented in 2007) has set

strict rules for the access and removal of liquidity from the fragmented US equity market, de

facto linking the trading activities across trading venues. These transformations have not only

changed how equity markets function but also how market participants interact with the market

and among themselves.

We begin this study by examining how the introduction of Reg-NMS has affected the trading

strategies of fast, impatient traders. The implementation of Rule 611, which extends price priority

across all the trading venues in the National Market System, forces them to monitor all trading

venues in order to correctly asses the placement of their orders. We find evidence that because

of their impatient nature, these traders react to all events that negatively affect the position of

their orders, regardless of the venue of origin. This behavior results in an order flow that is made

up of a high volume of very short-lived limit orders, which is consistent with a previously studied,

but not yet fully explained, phenomenon of fleeting liquidity.


We then investigate whether fast, impatient traders are able to leverage their speed advantage

to turn market fragmentation in their favor. We find evidence that their ability to anticipate the

order flow of the other market participants, allows them to engage in a trading strategy that

relies on the simultaneous submission of multiple orders across exchanges. Such strategy, called

Overbooking, aims at executing only one of these orders rather than all of them and uses the

availability of multiple exchanges to increase the probability of execution while limiting the risk

of over execution thanks to their speed advantage.

Overall, our findings show that a sub group of traders was not only able to adapt to a changing

trading environment but actually take advantage of it. The Overbooking trading strategy is

effective at increasing the probability of execution while also decreasing execution time and it is

particularly effective for stocks with a high degree of competition for superior queue placement.

This suggests that the ability to effectively trade on multiple venues simultaneously allows fast,

impatient traders to avoid engaging in a costly algorithmic battle for a favorable queue

placement, or submitting very aggressively priced limit orders, to attain quick execution.

Moreover, our findings show that the actions of these traders, driven by their fast, and impatient

nature and constrained by the complex rules that regulate liquidity access and provision on the

National Market System, result in the linking of order flow dynamics across trading venues. We

find that the cancellation of an order can be determined by changes that have occurred

elsewhere in the market and that to model correctly order flow dynamics it is necessary to

include in the analysis the changes that occur on all trading venues. We also find that fast,

impatient traders, actively monitor the state of all trading venues after order submission, and

that they benchmark the present state of the market to the state at submission.


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