A growing number of exchanges are fighting quote-stuffing with fees aimed at punishing high-frequency traders for excessive order cancellations.
As regulators continue their struggle to define and police high-frequency trading, exchanges around the world are making a push of their own to rid the markets of one of HFT‘s most contentious — and potentially abusive — elements.
In recent months, exchanges have announced plans to roll out measures aimed squarely at eradicating the technique of quote-stuffing, a common strategy in which high-frequency traders rapidly fire off, and then cancel, millions of orders as a means to probe the direction in which the market is heading. While few of these orders are actually executed, the tactic has proven highly profitable for high-frequency traders.
The problem is, all these cancelled orders place a serious burden on the exchanges, while possibly obscuring price discovery for retail and institutional investors, experts say. As a result, a growing number of exchanges are gearing up to fight back with fees aimed at punishing high-frequency traders for excessive order cancellations.