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Intentional Access Delays, Market Quality, and Price Discovery: Evidence from IEX Becoming an Exchange

Feb. 7, 2018

Edwin Hu

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This paper exploits cross-sectional variation in trading activity and the staggered securities phase-in when the Investors Exchange (IEX) becomes a national securities exchange to study the effects of intentional access delays on market quality and price discovery. Market quality improves after IEX becomes an exchange for securities with high historical IEX market share. Price discovery improves overall, although IEX's contribution to price discovery remains small. Intermarket Sweep Order activity decreases overall, coinciding with improvements in price discovery. In a second natural experiment where IEX's ECN goes dark in 28 symbols there is no change in market quality or price discovery. The findings in this paper suggest that protected markets with symmetric speed bumps may be a feasible solution to deemphasize speed in lieu of regulatory intervention.


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