The effect of NYSE American’s latency delay on informed trading

Informed high-frequency traders pose a major risk to liquidity providers in financial markets due to adverse selection, which can result in market failure. To mitigate this risk, some exchanges have implemented speed bumps which delay trades. Using trade and quote (TAQ) data of 50 stocks on the NYSE American and the NASDAQ from May 2017 to August 2017, we identify the impact of a trading delay of 350 microseconds on the probability of informed trading using difference-in-differences estimation. We find a statistically significant decline in the probability of informed trading due to the implementation of the speed bump on the NYSE American stock exchange. • Sample of 50 stocks on the NYSE American and the NASDAQ from May 2017 to August 2017. • Identified the impact of a trading delay of 350 microseconds on the probability of informed trading using difference-in-differences estimation. • Volume-synchronized probability of informed trading (VPIN) used to estimate probability of informed trading. • Statistically significant decline in the probability of informed trading due to the implementation of the speed bump on the NYSE American stock exchange.