Alternative Trading Systems and Liquidity.

A diversity of so-called Alternative Trading Systems (ATS) has challenged the existing traditional exchanges. This paper studies the impact of these ATS on the liquidity on the traditional financial markets using a market microstructure approach. In the United States ATS have been particularly successful in attracting trade in the Nasdaq dealer market, whereas they are less successful in competition with the NYSE. The theoretical reasoning behind this conjecture is that the agency nature of trading at the ATS allows investors to trade directly with each other without the intervention of a dealer. We argue that since continental European exchanges are typically organized as auction markets implying an agency nature of trading, the liquidity externality will prevent the auction-type ATS from breaking through and acquiring a significant market share in Europe. Only Crossing Networks may turn out to be more successful in realizing trades in Europe as they rely on the efficiency of price discovery on their primary market.

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

The impact on financial market liquidity of the markets in financial instruments directive (MiFID).

The Markets in Financial Instruments Directive (MiFID), which entered into force on 1 November 2007, implies the abolition of the concentration rule regarding equity transactions so far in force in France. This rule, which was applied to varying degrees across Europe, resulted in the vast majority of order flow being concentrated in regulated markets, and notably in Euronext Paris for shares listed on the French stock exchange. Over the coming years, order flow will become fragmented de facto as a result of being able to execute client orders on regulated markets as well as on multilateral trading facilities (MTFs), and by use of systematic internalisers (SIs), which act as counterparties for transactions in the same way as market makers on price-driven markets such as the London Stock Exchange (LSE) or Nasdaq. The competition between trading venues, which will be enhanced at the European level, has steadily been increasing since the 1970s. Since then, alternating series of regulations and technological progress have gradually weakened the monopolistic position of national regulated markets. The impact of this phenomenon has been a continuous fall in transaction costs, benefi ting investors and issuers of securities through a drop in the cost of capital. However, the fragmentation of order fl ow stemming from a proliferation of trading venues may raise concern about a reduction in market liquidity and a slowdown in the decline in transaction costs, which would run counter to the competitive effect between systems sought by the European regulatory authorities. Although the most conservative medium-term scenarios point to continued dominance by regulated markets, we estimate that in the case of France, a very signifi cant share of order fl ow may rapidly be executed on alternative trading systems. Here, we focus on the impact on “wholesale” transactions, i.e. transactions of at least EUR 50,000, which we attribute to institutional investors. In particular, we identify the portion of these trades currently executed outside the order book. According to our estimates, these transactions constitute roughly 10% of the traded volume on CAC 40 shares and that may be lost to the regulated market each year. This volume, which would more or less equally be distributed between SIs and MTFs operating crossing systems, only constitutes a fraction of the total volume of the wholesale market.

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

E-BUSINESS AND GLOBAL SOURCING – INFERENCES FROM SECURITIES EXCHANGES

This paper sets out a conceptual model that describes how the configuration of relevant geographic markets might change as electronic “gateways” or portals challenge conventional markets. It then considers the main conceptual inferences against the experience of securities markets. Consideration of empirical evidence suggests that e-business will lead to expanded geographic markets, although the pace and extent of the expansion might be slower and less dramatic, even in the long- run, than early enthusiasts of e-business may have anticipated.geographic markets, securities markets, e-business