We develop a principal-agent model of cyber-attacking with fee-paying clients who delegate security decisions to financial platforms. We derive testable implications about clients’ vulnerability to cyber attacks and about the fees charged.
Staff working papers
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.