Nidhi Aggarwal, Venkatesh Panchapagesan, Susan Thomas
Previous studies find mixed results about how a fee on high order-to-trade (OTR) ratios impacts market quality. The paper analyses two instances when an OTR fee was implemented with different objectives. A difference-in-difference regression, that exploits microstructure features, finds causal evidence of lower aggregate OTR and higher market quality when the fee was used to manage limited exchange infrastructure, but little or no change in the OTRs or market quality when it was used to address public policy concerns. We argue that interventions which are designed to solve a manifestly visible problem are more likely to deliver desired outcomes.
Citation: When do regulatory hurdles work?, Nidhi Aggarwal, Venkatesh Panchapagesan, Susan Thomas,FRG working paper, April 2019.