Let’s talk about exchange competition
Sean Foley presented “Forming an orderly line — Does protecting empty queues drive excessive fragmentation?”, coauthored with Elvis Jarnecic and Anqi Liu. By analyzing Canadian broker-identified data during the introduction of the trade-through prohibition in Canada in early 2011, as well as its partial removal in late 2016, the authors look at how orders are placed at different exchanges by individual brokers. They show that queue jumping is a key driver of fragmentation. Reusing Prof. Foley’s analogy from his talk, small venues without order protection rules are akin to cashier-less checkouts in a supermarket: you wouldn’t want to get in line there. However, the trade-through rule prevents brokers from ignoring any venue. In other words, it’s a sure guarantee that the cashier will show up if you get in line.