Why trading speed matters: A tale of queue rationing under price controls

Chen Yao, Mao Ye

Research output: Contribution to journalArticlepeer-review


We show that queue rationing under price controls is one driver of high-frequency trading. Uniform tick sizes constrain price competition and create rents for liquidity provision, particularly for securities with lower prices. The time priority rule allocates rents to highfrequency traders (HFTs) because of their speed advantage. An increase in relative tick size, defined as uniform tick sizes divided by security prices, increases the fraction of liquidity provided by HFTs but harms liquidity. We find that the message-to-trade ratio is a poor cross-sectional proxy for HFTs' liquidity provision: stocks with more liquidity provided by HFTs have lower message-to-trade ratios.

Original languageEnglish (US)
Pages (from-to)2157-2183
Number of pages27
JournalReview of Financial Studies
Issue number6
StatePublished - Jun 1 2018

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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