David Cimon is a Senior Economist in the Financial Markets Department at the Bank of Canada. His current research focuses on financial market structure and the impact of regulation. Recent topics include: conflict of interest in the brokerage market, the impact of regulation on market making, latency delays, and crowdfunding.
Latency delays—known as “speed bumps”—are an intentional slowing of order flow by exchanges. Supporters contend that delays protect market makers from high-frequency arbitrage, while opponents warn that delays promote “quote fading” by market makers. We construct a model of informed trading in a fragmented market, where one market operates a conventional order book and the other imposes a latency delay on market orders.
The primary focus of this paper is to study conflict of interest in the brokerage market. Brokers face a conflict of interest when the commissions they receive from investors differ from the costs imposed by different trading venues.