Working Papers

Quantitative Finance




Trading and Ordering Patterns of Market Participants in High Frequency Trading Environment -Empirical Study in the Japanese Stock Market-(Forthcoming in Asia-Pacific Financial Markets)(Revised version of CARF-F-411)

Author:Taiga Saito, Takanori Adachi, Teruo Nakatsuma, Akihiko Takahashi, Hiroshi Tsuda, Naoyuki Yoshino


In this study, we investigate ordering patterns of different types of market participants in Tokyo Stock Exchange (TSE) by examining order records of the listed stocks. Firstly, we categorize the virtual servers in the trading system of TSE, each of which is linked to a single trading participant, by the ratio of cancellation and execution  in the order placement  as well as the number of executions at the opening of the afternoon session. Then, we analyze ordering patterns of the servers in the categories in short intervals for the top 10 highest trading volume stocks. By classifying the intervals into four cases by returns, we observe how different types of market participants submit or execute orders in the market situations. Moreover, we investigate the shares of the executed volumes for the different types of servers in the swings and roundabouts of the Nikkei 225 index, which were observed in September in 2015. The main findings of this study are as follows: Server type A, which supposedly includes non-market making proprietary traders with high-speed algorithmic strategies, executes and places orders along with the direction of the market. The shares of the execution and order volumes along with the market direction increase when the stock price moves sharply. Server type B, which presumably includes servers employing  a market  making strategy with high cancellation and low execution  ratio, shifts its market  making  price ranges in the rapid price  movements. We observe that passive servers in Server type B have a large share and buy at low levels in the price falls.  Also, Server type B, as well as Server type A, makes profit in the price falling days and particularly, the aggressive servers in the  server  type  make  most  of the  profit. Server type C, which is assumed to include servers receiving orders from small investors, constantly has a large share of execution and order volume.