Description
Abstract: In 2015, a Canadian stock exchange, TSX Alpha Exchange, implemented a speed bump for marketable orders and an inverted fee structure as part of a redesign. We find evidence of mild improvements in market quality after the redesign, and we do not find that Alpha appreciably segmented retail order flow away from other Canadian exchanges. For high-priced stocks, Alpha's users trade off improvements in execution size against larger effective spreads after the redesign and adjust their trading behavior in a manner consistent with this trade-off. The findings suggest that speed bumps may enable exchanges to compete for latency-insensitive orders.