High-Frequency Trading and the Execution Costs of Institutional Investors (Financial Services Authority)

January 2013

KEYWORDS: exchange speed, execution cost, financial crisis, Financial Services Authority, FSA, hedge fund expenses, HFT, High-Frequency Trading, Institutional Investors, London Stock Exchange, technology, United Kingdom


Jonathan Brogaard, Terrence Hendershott, Stefan Hunt, Torben Latza, Lucas Pedace, Carla Ysusi

  • Financial Services Authority


This paper studies whether high-frequency trading (HFT) increases the execution costs of institutional investors. We use technology upgrades that lower the latency of the London Stock Exchange to obtain variation in the level of HFT over time. Following upgrades, the level of HFT increases. Around these shocks to HFT, as far as can be measured, institutional traders’ execution costs remain unchanged. Thus, we find no evidence that these increases in HFT activity impacted institutional execution costs.

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