The Federation of European Securities Exchanges (FESE) is delighted to announce that this year’s winners of the De la Vega Prize 2015 are Dion Bongaerts and Mark Van Achter from the Rotterdam School of Management, Erasmus University, for their paper “High Frequency Trading and Market Stability”.

This paper provides the first theoretical analysis of the impact on liquidity and market stability of the emergence of a new set of liquidity providers on financial markets: high-frequency traders (HFTs). In line with practice, HFTs differ most notably from traditional market participants in the fact that they combine speed and information processing.

In summary, the study compares a setting with HFTs to settings with traders that only have speed technology or only information processing technology available. It is shown that the stand-alone implementation of either technology will only create very mild market stability distortions at most. Yet, when HFTs dominate the market for liquidity provision, markets are more liquid but feature occasional liquidity dry-ups. Furthermore, the authors also discuss how regulation can prevent these sudden drops of liquidity and how the market may recover after a freeze.

The prize was awarded by FESE President Deirdre Somers, CEO of the Irish Stock Exchange, and Michel Maquil, Chairman of the De la Vega Steering Committee, on 17th June 2015 at the Gala Dinner of the FESE Convention in Oslo.

To view the paper, click here.

 Photography By Nicki Twang part2 391

From the left: Rainer Riess, Dion Bongaerts, Deirdre Somers, Mark Van Achter and Michel Maquil.