Organized equity markets in Germany

The German financial system is the archetype of a bank-dominated system. This implies that organized equity markets are, in some sense, underdeveloped. The purpose of this paper is, first, to describe the German equity markets and, second, to analyze whether it is underdeveloped in any meaningful sense. In the descriptive part we provide a detailed account of the microstructure of the German equity markets, putting special emphasis on recent developments. When comparing the German market with its peers, we find that it is indeed underdeveloped with respect to market capitalization. In terms of liquidity, on the other hand, the German equity market is not generally underdeveloped. It does, however, lack a liquid market for block trading. Klassifikation: G 51 . Revised version forthcoming in "The German Financial System", edited by Jan P. Krahnen and Reinhard H. Schmidt, Oxford University Press

The Rise of Computerized High Frequency Trading: Use and Controversy

Over the last decade, there has been a dramatic shift in how securities are traded in the capital markets. Utilizing supercomputers and complex algorithms that pick up on breaking news, company/stock/economic information and price and volume movements, many institutions now make trades in a matter of microseconds, through a practice known as high frequency trading. Today, high frequency traders have virtually phased out the dinosaur floor-traders and average investors of the past. With the recent attempted robbery of one of these high frequency trading platforms from Goldman Sachs this past summer, this rise of the machines has become front page news, generating vast controversy and discourse over this largely secretive and ultra-lucrative practice. Because of this phenomenon, those of us on Main Street are faced with a variety of questions: What exactly is high frequency trading? How does it work? How long has this been going on for? Should it be banned or curtailed? What is the end-game, and how will this shape the future of securities trading and its regulation? This iBrief explores the answers to these questions

Impersonal efficiency and the dangers of a fully automated securities exchange

This report identifies impersonal efficiency as a driver of market automation during the past four decades, and speculates about the future problems it might pose. The ideology of impersonal efficiency is rooted in a mistrust of financial intermediaries such as floor brokers and specialists. Impersonal efficiency has guided the development of market automation towards transparency and impersonality, at the expense of human trading floors. The result has been an erosion of the informal norms and human judgment that characterize less anonymous markets. We call impersonal efficiency an ideology because we do not think that impersonal markets are always superior to markets built on social ties. This report traces the historical origins of this ideology, considers the problems it has already created in the recent Flash Crash of 2010, and asks what potential risks it might pose in the future

Where do electronic markets come from? Regulation and the transformation of financial exchanges

The practices of high-frequency trading (HFT) are dependent on automated financial markets, especially those produced by securities exchanges electronically interconnected with competing exchanges. How did this infrastructural and organizational state of affairs come to be? Employing the conceptual distinction between fixed-role and switch-role markets, we analyse the discourse surrounding the design and eventual approval of the Securities and Exchange Commission’s Regulation of Exchanges and Alternative Trading Systems (Reg ATS). We find that the disruption of the exchange industry at the hands of automated markets was produced through an interweaving of both technological and political change. This processual redefinition of the ‘exchange’, in addition, may provide a suggestive precedent for understanding contemporary regulatory crises generated by other digital marketplace platforms

Liquidity of bitcoin – insights from Polish and global markets

Bitcoin can be exchanged for other cryptocurrencies as well as for fiat currencies on many different platforms. Nevertheless, its real convertibility may be limited by market liquidity. The main aim of this article is to characterize and compare big and small bitcoin markets in terms of liquidity. I examine four platforms with high trade volume: Kraken, Bitstamp, BitFlyer and BTCBOX, as well as small entities which enable bitcoin to be traded in Polish zloty: BitBay and BitMarket. I compare the number of trades and the time between trades on selected bitcoin markets, determine the volume distribution throughout the day and analyse the dynamics of Amihud’s illiquidity measure – ILLIQ. I find that an exchange which is among the global leaders in terms of trading bitcoin in a particular traditional currency can be considered a smaller market in terms of trade volume in another traditional currency. Moreover, the results imply that BitBay and BitMarket can be perceived as local markets. They are mainly used for trading in Polish zloty, and are illiquid in terms of trading in the remaining traditional currencies. Home bias, the fact that they offer a possibility of trading in a less popular currency (in comparison to the world reserve currencies), and that have their interface in Polish, may give these platforms a competitive advantage.Bitcoinem można obracać na wielu różnych platformach, wykorzystując do tego inne kryptowaluty, jak również waluty tradycyjne. Niemniej jego rzeczywista wymienialność może być ograniczona przez płynność rynku. Głównym celem artykułu jest scharakteryzowanie i porównanie wybranych giełd kryptowalut pod względem płynności. W tym celu przeanalizowano cztery platformy, które odznaczają się wysokim wolumenem obrotu: Kraken, Bitstamp, BitFlyer i BTCBOX, a także dwa małe podmioty umożliwiające handel w polskim złotym: BitBay i BitMarket. W artykule przedstawiono porównanie rynków pod względem liczby zawartych transakcji, średniego czasu pomiędzy kolejnymi transakcjami czy rozkładu wolumenu obrotu w ciągu dnia. Ponadto przeanalizowano zmiany w czasie miary płynności – ILLIQ. Wyniki pozwoliły stwierdzić, że platforma, która znajduje się wśród globalnych liderów w obrocie bitcoinem w danej walucie tradycyjnej, może być postrzegana jako podmiot mały, jeśli zostanie wzięty pod uwagę obrót w innej walucie tradycyjnej. Ponadto najbardziej popularne platformy umożliwiające wymianę bitcoina na polskiego złotego, czyli BitBay i BitMarket, mogą być uznane za rynki lokalne. Są one głównie wykorzystywane do handlu w złotym. W przypadku obrotu bitcoinem w innych walutach tradycyjnych cechuje je bardzo niska płynność. Czynniki takie jak home bias, możliwość handlu bitcoinem w mniej popularnej walucie tradycyjnej (w porównaniu ze światowymi walutami rezerwowymi) oraz interfejs użytkownika w języku polskim mogą dawać pewną przewagę konkurencyjną tym platformom