Duplicated Orders, Swift Cancellations, and Fast Market Making in Fragmented Markets

Employing unique data from 91 stocks trading on their primary exchanges and three alternative venues, we show that liquidity suppliers post duplicate limit orders on competing trading venues and cancel the duplicated orders immediately after one of them is filled. This is consistent with liquidity suppliers engaging in crossvenue market making. This duplicated-then-canceled liquidity is predominantly used by high-frequency traders when their inventories are not excessive. It reduces execution costs of fast traders on alternative venues. It, however, has some adverse impact on execution costs on primary exchanges, but those negative effects fail to outweigh the liquidity benefits of market fragmentation. This paper was accepted by Agostino Capponi, finance. Funding: The authors thank the Agence Nationale de la Recherche [Grant ANR-15-CE33-0006] for funding the project and Centre pour la recherche économique et ses applications for granting additional research budget. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.01789 .