Abstract
This study examines the impact of allowing traders to co-locate their servers near exchange servers on the liquidity of futures contracts traded on the Australian Securities Exchange. It provides evidence of an increase in proxies for high-frequency trading activity following the introduction of co-location. There is strong evidence of a decrease in bid-ask spreads and an increase in market depth after the introduction of co-location. We conclude that the introduction of co-location enhances liquidity. We conjecture that co-location improves the efficiency with which liquidity providers (including market maker high-frequency traders) are able to make markets.
Original language | English |
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Pages (from-to) | 20-33 |
Number of pages | 14 |
Journal | The Journal of Futures Markets |
Volume | 34 |
Issue number | 1 |
DOIs | |
Publication status | Published - Jan 2014 |