High-frequency trading and fast cancellations in a centralized market

Nihan Dalgıç (Yeditepe University),
Cumhur Ekinci (Istanbul Technical University),
Oguz Ersan (Kadir Has University),
Yunus Şahin (Kadir Has University)

This study examines the high-frequency trading activity in a centralized market. We
work with the listed stocks in Borsa Istanbul and the respective order books for four months
in 2020. We investigate the impacts of cancelled orders which rapidly (within low latencies
of milliseconds and microseconds) follow the trades in the same stock. We associate these
rapid cancellations with high-frequency trading and study the role of this activity in the
markets. In addition to the share of these rapid cancellations, we consider for several
properties including the price and volume dimensions. We demonstrate significant effects of
fast cancellations on market quality and arrival of new electronic messages (further
cancellations, new order submissions). A significant part of all cancellations follows a trade
with a low latency. We find that fast cancellation rate and characteristics may have negative
impacts on market liquidity which are mostly observed in the widening of bid ask spreads.
Moreover, intraday periods with high rates of fast cancellations are likely to be followed by
periods of increased message activity.