Internalization, Clearing and Settlement, and Liquidity

Abstract: We study the relation between liquidity in financial markets and post-trading fees (i.e. clearing and settlement fees). The clearing and settlement agent (CSD) faces different marginal costs for different types of transactions. Costs are lower for an internalized transaction, i.e. when buyer and seller originate from the same broker. We study two fee structures that the CSD applies to cover its costs. The first is a uniform fee on all trades (internalized and non-internalized) such that the CSD breaks even on average. Traders then maximize trading rates and higher post-trading fees increase observed liquidity in the market. The second fee structure features a CSD breaking even by charging the internalized and non-internalized trades their respective marginal cost. In this case, traders face the following trade-off: address all possible counterparties at the expense of considerable post-trading fees, or enjoy lower post-trading fees by targeting own-broker counterparties only. This difference in post-trading fees drives traders'strategies and thus liquidity. Furthermore, across the two fee structures, we find that observed liquidity may differ from cum-fee liquidity (which encompasses the post-trading fees). With trade-specific fees, the cum-fee spread depends on the interacting counterparties. Next, regulators can improve welfare by imposing a particular fee structure. The optimal fee structure hinges on the magnitude of the post-trading costs. Noteworthy, a fee structure yielding higher social welfare may in fact reduce observed liquidity. Finally, we consider a number of extensions including market power for the CSD, anonymous trading and differences in broker size.transaction fees;internalization;clearing and settlement;liquidity;anonymity

On the lack of correlation between Mg II 2796, 2803 Angstrom and Lyman alpha emission in lensed star-forming galaxies

We examine the Mg II 2796, 2803 Angstrom, Lyman alpha, and nebular line emission in five bright star-forming galaxies at 1.66<z<1.91 that have been gravitationally lensed by foreground galaxy clusters. All five galaxies show prominent Mg II emission and absorption in a P Cygni profile. We find no correlation between the equivalent widths of Mg II and Lyman alpha emission. The Mg II emission has a broader range of velocities than do the nebular emission line profiles; the Mg II emission is redshifted with respect to systemic by 100 to 200 km/s. When present, Lyman alpha is even more redshifted. The reddest components of Mg II and Lyman alpha emission have tails to 500-600 km/s, implying a strong outflow. The lack of correlation in the Mg II and Lyman alpha equivalent widths, the differing velocity profiles, and the high ratios of Mg II to nebular line fluxes together suggest that the bulk of Mg II emission does not ultimately arise as nebular line emission, but may instead be reprocessed stellar continuum emission.Comment: The Astrophysical Journal, in press. 6 pages, 2 figure

Dynamic Order Submission Strategies with Competition between a Dealer Market and a Crossing Network

We present a dynamic microstructure model where a dealer market (DM) and a crossing network (CN) interact. Sequentially arriving agents with different valuations for an asset maximize their profits either by trading at a DM or by submitting an order for (possibly) uncertain execution at a CN. We develop the analysis for three different informational settings: transparency, “complete” opaqueness of all order flow, and “partial” opaqueness (with observable DM trades). A key result is that the interaction of trading systems generates systematic patterns in order flow for the transparency and partial opaqueness settings. The precise nature of these patterns depends on the degree of transparency at the CN. While unambiguous with a transparent CN, they may reverse in direction if the CN is opaque. Moreover, common to the three informational settings, we find that a CN and a DM cater for different types of traders. Investors with a high willingness to trade are more likely to prefer a DM. The introduction of a CN next to a DM also affects welfare as it increases total order flow by attracting traders who would otherwise not submit orders (“order creation”); in addition, it diverts trades from the DM (“trade diversion”). We find that the coexistence of a CN and DM produces greater trader welfare than a DM in isolation. Also, more transparent markets lead to greater trader welfare but may reduce overall welfare.Alternative Trading Systems;Crossing Network;Dealer Market;Order Flow;Transparency;Welfare

The size-star formation relation of massive galaxies at 1.5<z<2.5

We study the relation between size and star formation activity in a complete sample of 225 massive (M > 5 x 10^10 Msun) galaxies at 1.5<z<2.5, selected from the FIREWORKS UV-IR catalog of the CDFS. Based on stellar population synthesis model fits to the observed restframe UV-NIR SEDs, and independent MIPS 24 micron observations, 65% of galaxies are actively forming stars, while 35% are quiescent. Using sizes derived from 2D surface brightness profile fits to high resolution (FWHM_{PSF}~0.45 arcsec) groundbased ISAAC data, we confirm and improve the significance of the relation between star formation activity and compactness found in previous studies, using a large, complete mass-limited sample. At z~2, massive quiescent galaxies are significantly smaller than massive star forming galaxies, and a median factor of 0.34+/-0.02 smaller than galaxies of similar mass in the local universe. 13% of the quiescent galaxies are unresolved in the ISAAC data, corresponding to sizes <1 kpc, more than 5 times smaller than galaxies of similar mass locally. The quiescent galaxies span a Kormendy relation which, compared to the relation for local early types, is shifted to smaller sizes and brighter surface brightnesses and is incompatible with passive evolution. The progenitors of the quiescent galaxies, were likely dominated by highly concentrated, intense nuclear star bursts at z~3-4, in contrast to star forming galaxies at z~2 which are extended and dominated by distributed star formation.Comment: 6 pages, 4 figures, accepted for publication in Ap

The determinants of savings in the third pension pillar

The paper analyses participation in and contributions to the third pillar of the pension system by Belgian households. This pillar represents individual saving for retirement and has been growing rapidly. A detailed dataset of tax declarations over the period from 1993 until 2003 was used to analyse the possible determinants of saving in the third pillar. Firstly, this dataset makes an analysis from a macroeconomic point of view possible, showing an apparent increase in total contributions to the third pillar by 39 p.c. in real terms between 1993 and 2003. This increase is mainly due to a rise in the participation rate (29 p.c. in 1993 and 40 p.c. in 2003). A detailed analysis is provided across the age groups, which further shows the influence of the demographic evolution, the average income of the participants in the third pillar and the contribution rate. The dataset also helps point up a wide number of possible microeconomic determinants of saving for retirement, such as age, income, professional status, civil status, region of residence, property ownership, employment situation, participation in second pillar pension schemes, number of dependents, etc. Moreover, the database allows a distinction to be made between the two forms in the third pillar : pension saving and life insurance. From such a microeconomic point of view, the analysis sheds some light on the major determinants of participation to the third pillar. The main findings show that older households are more likely to opt for a third pillar pension scheme. Furthermore, it appears that households consider the two forms of the third pillar as being complementary rather than substitutes for each other : households that participate in pension saving schemes are also more likely to take out life insurance and vice versa. Besides age, the other determinants that have a positive impact on participation in the third pillar of the pension system are : having higher income, being self-employed, getting an early retirement pension, being a home owner, being married and living in Flanders rather than Brussels or Wallonia.personal finance, pension fund, life insurance, private pensions

FIREWORKS U38-to-24 micron photometry of the GOODS-CDFS: multi-wavelength catalog and total IR properties of distant Ks-selected galaxies

We present a Ks-selected catalog, dubbed FIREWORKS, for the Chandra Deep Field South (CDFS) containing photometry in U_38, B_435, B, V, V_606, R, i_775, I, z_850, J, H, Ks, [3.6 um], [4.5 um], [5.8 um], [8.0 um], and the MIPS [24 um] band. The imaging has a typical Ks limit of 24.3 mag (5 sigma, AB) and coverage over 113 arcmin^2 in all bands and 138 arcmin^2 in all bands but H. We cross-correlate our catalog with the 1 Ms X-ray catalog by Giacconi et al. (2002) and with all available spectroscopic redshifts to date. We find and explain systematic differences in a comparison with the 'z_850 + Ks'-selected GOODS-MUSIC catalog that covers ~90% of the field. We exploit the U38-to-24 micron photometry to determine which Ks-selected galaxies at 1.5<z<2.5 have the brightest total IR luminosities and which galaxies contribute most to the integrated total IR emission. The answer to both questions is that red galaxies are dominating in the IR. This is true no matter whether color is defined in the rest-frame UV, optical, or optical-to-NIR. We do find however that among the reddest galaxies in the rest-frame optical, there is a population of sources with only little mid-IR emission, suggesting a quiescent nature.Comment: Accepted for publication in the Astrophysical Journal, 20 pages, 10 figures, reference to website correcte

Optical Spectroscopy of Distant Red Galaxies

We present optical spectroscopic follow-up of a sample of Distant Red Galaxies (DRGs) with K 2.3, in the Hubble Deep Field South, the MS 1054-03 field, and the Chandra Deep Field South. Spectroscopic redshifts were obtained for 15 DRGs. Only 2 out of 15 DRGs are located at z < 2, suggesting a high efficiency to select high-redshift sources. From other spectroscopic surveys in the CDFS targeting intermediate to high redshift populations selected with different criteria, we find spectroscopic redshifts for a further 30 DRGs. We use the sample of spectroscopically confirmed DRGs to establish the high quality (scatter in \Delta z/(1+z) of ~ 0.05) of their photometric redshifts in the considered deep fields, as derived with EAZY (Brammer et al. 2008). Combining the spectroscopic and photometric redshifts, we find that 74% of DRGs with K 2. The combined spectroscopic and photometric sample is used to analyze the distinct intrinsic and observed properties of DRGs at z 2. In our photometric sample to K < 22.5, low-redshift DRGs are brighter in K than high-redshift DRGs by 0.7 mag, and more extincted by 1.2 mag in Av. Our analysis shows that the DRG criterion selects galaxies with different properties at different redshifts. Such biases can be largely avoided by selecting galaxies based on their rest-frame properties, which requires very good multi-band photometry and high quality photometric redshifts.Comment: Accepted for publication in the Astrophysical Journal, 13 pages, 8 figures, 5 table

ALMA resolves the molecular gas in a young low-metallicity starburst galaxy at z=1.7

We present Atacama Large Millimeter/submillimeter Array observations of CO lines and dust continuum emission of the source RCSGA 032727--132609, a young $z=1.7$ low-metallicity starburst galaxy. The CO(3-2) and CO(6-5) lines, and continuum at rest-frame $450\,\mu m$ are detected and show a resolved structure in the image plane. We use the corresponding lensing model to obtain a source plane reconstruction of the detected emissions revealing intrinsic flux density of $S_{450\,\mu m}=23.5_{-8.1}^{+26.8}$ $\mu$Jy and intrinsic CO luminosities $L'_{\rm CO(3-2)}=2.90_{-0.23}^{+0.21}\times10^{8}$ ${\rm K\,km\,s^{-1}\,pc^{2}}$ and $L'_{\rm CO(6-5)}=8.0_{-1.3}^{+1.4}\times10^{7}$ ${\rm K\,km\,s^{-1}\,pc^{2}}$. We used the resolved properties in the source plane to obtain molecular gas and star-formation rate surface densities of $\Sigma_{\rm H2}=16.2_{-3.5}^{+5.8}\,{\rm M}_{\odot}\,{\rm pc}^{-2}$ and $\Sigma_{\rm SFR}=0.54_{-0.27}^{+0.89}\,{\rm M}_{\odot}\,{\rm yr}^{-1}\,{\rm kpc}^{-2}$ respectively. The intrinsic properties of RCSGA 032727--132609 show an enhanced star-formation activity compared to local spiral galaxies with similar molecular gas densities, supporting the ongoing merger-starburst phase scenario. RCSGA 032727--132609 also appears to be a low--density starburst galaxy similar to local blue compact dwarf galaxies, which have been suggested as local analogs to high-redshift low-metallicity starburst systems. Finally, the CO excitation level in the galaxy is consistent with having the peak at ${\rm J}\sim5$, with a higher excitation concentrated in the star-forming clumps.Comment: 11 pages, 4 figures, accepted for publication in ApJ