Adverse Selection, Speed Bumps and Asset Market Quality

Recent evidence suggests that the fastest algorithmic traders in financial markets profit at the expense of slower traders. One solution gaining traction is a `speed-bump', which introduces a delay between the time in which an order is submitted, and when it is processed. We conduct an impact evaluation of the speed bump's effectiveness on Betfair, a betting exchange, where this design has been in force for more than a decade. We find that increases in the duration of the delay led to improvements in liquidity (measured by bid-ask spreads and depth) and market quality (measured by order frequency and volume).