Speed Bump and Stock Market Quality: Evidence From NYSE American

ABSTRACT Should trading speed of high‐frequency traders be regulated? Using the data from the New York Stock Exchange American, this paper examines the impact of a speed bump on market liquidity and price discovery. Our results indicate that the use of a speed bump can lower the costs of adverse selection through reducing informed trading. However, it also has a negative effect on price discovery, as trading activities slow down. The speed bump policy is a double‐edged sword that improves liquidity but reduces price discovery.