Selling Trading Advantages in Financial Markets

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ID: 319683
2026
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Abstract
Abstract We model the feedback loop between the sales of trading advantages (e.g., data or co-location services) and traders’ endogenous participation in financial markets. Whereas a trader’s benefit from purchasing trading advantages increases with aggregate market participation, the benefit from participating decreases with other traders’ purchases of trading advantages that impose negative externalities on counterparties. In equilibrium, sellers of trading advantages (e.g., data providers or securities exchanges) may maximize their profits by prompting inefficiently low market participation and liquidity. We study the consequences of altering the market structure and show that the resulting policy prescriptions contrast sharply with standard models.
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openalex_W7167422144 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Vincent Glode, Xingtan Zhang
Journal international review of finance
Year 2026
DOI
10.1093/rof/rfag025
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