High-frequency traders' evolving role as market makers

The current academic literature on HFTs considers them as the present-day de facto market makers. We show that HFT trading strategies have moved away from passive market-making over time. We explore the role of regulatory hurdles in this regard and find that penalties on high OTR (order-to-trade ratio) negatively affect HFT market-making and result in HFTs participating in trades as liquidity takers rather than liquidity providers. HFT passive market making is positively associated with the OTR. We also observe reduced profitability of HFT market-making strategies over time.