Using a unique dataset with full order book and transaction level data at the member level, we investigate how market conditions changed during the rise of the machines between 2002 and 2006 on Euronext. We find that market activity is more intense in 2006, with a much higher percentage of orders being canceled. Although we observe disparities among stocks, we find that volatility goes down, spreads decrease, and depth rises from 2002 to 2006. Using market members' identification codes, we identify fast traders in 2006 based on message traffic and the lifetime of orders. We then separate the CAC40 stocks in two groups. By distinguishing stocks most exposed to fast trading in 2006 from those most immune from it, we show that the fast-traded stocks benefit the least from the liquidity increase. These fast-traded stocks could have maintained their liquidity 'edge' observed in 2002, had they been better immune from fast trading.
Desagre, Christophe ; D'Hondt, Catherine ; Petitjean, Mikael ; et. al. Liquidity and the rise of fast trading on Euronext.33rd International AFFI Conference (Liège (Belgium), du 23/05/2016 au 25/05/2016).
