hard · Market Microstructure lob

If a market uses a Pro-Rata matching engine rather than Price-Time Priority (FIFO), how might the permanent impact of a large metered order be affected if parasitic traders are present?

1. Permanent impact will decrease because pro-rata matching naturally widens the quoted spread to discourage informed traders.
2. Permanent impact may increase because parasitic traders can more easily gain fills alongside the large order by posting large sizes.
3. Permanent impact will decrease because parasitic traders cannot jump the queue based on raw speed the way they could under FIFO.
4. Permanent impact is unaffected here because matching engine priority rules only govern temporary impact and execution cost, not the midpoint.

Sign up free to see the explanation and track your rank →