Fragmentation in Financial Markets: the Rise of Dark Liquidity
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DECLARATION in Accordance with Point 18. of the Market Maker
DECLARATION In accordance with point 18. of the Market Maker Agreement concluded by and between Erste Befektetési Zrt. and Budapest Stock Exchange, Erste Befektetési Zrt. hereby declare that the company undertakes the market making of the following securities with the conditions described below: -Erste Arany Turbo Long 001 Warrant (ISIN: AT0000A22LG3; Ticker: EBGOLDTL001) Conditions of the market making hereby undertaken by Erste Befektetési Zrt. Market making period within trading hours: Free trading period Bid-ask spread: Market maker median price +/- 20% Minimum order quantity: 100 pieces Validity date of market maker agreement: By termination of the certificate Date: 09.08.2018 _______________________________________ Erste Befektetési Zrt. DECLARATION In accordance with point 18. of the Market Maker Agreement concluded by and between Erste Befektetési Zrt. and Budapest Stock Exchange, Erste Befektetési Zrt. hereby declare that the company undertakes the market making of the following securities with the conditions described below: -Erste Arany Turbo Long 002 Warrant (ISIN: AT0000A22LH1; Ticker: EBGOLDTL002) Conditions of the market making hereby undertaken by Erste Befektetési Zrt. Market making period within trading hours: Free trading period Bid-ask spread: Market maker median price +/- 20% Minimum order quantity: 100 pieces Validity date of market maker agreement: By termination of the certificate Date: 09.08.2018 _______________________________________ Erste Befektetési Zrt. DECLARATION In accordance with point 18. of the Market Maker Agreement concluded by and between Erste Befektetési Zrt. and Budapest Stock Exchange, Erste Befektetési Zrt. hereby declare that the company undertakes the market making of the following securities with the conditions described below: -Erste Ezüst Turbo Long 001 Warrant (ISIN: AT0000A22LJ7; Ticker: EBSILVTL001) Conditions of the market making hereby undertaken by Erste Befektetési Zrt. -
Impact on Financial Markets of Dark Pools, Large Investor, and HFT
Impact on Financial Markets of Dark Pools, Large Investor, and HFT Shin Nishioka1, Kiyoshi Izumi1, Wataru Matsumoto2, Takashi Shimada1, Hiroki Sakaji1, and Hiroyasu Matushima1 1 Graduate School of Engineering, The University of Tokyo, 7-3-1 Hongo, Bunkyo, Tokyo, Japan 2 Nomura Securities Co., Ltd.? [email protected] Abstract. In this research, we expanded an artificial market model in- cluding the lit market, the dark pools, the large investor, and the market maker (HFT). Using the model, we investigated their influences on the market efficiency and liquidity. We found that dark pools may improve the market efficiency if their usage rate were under some threshold. Es- pecially, It is desirable that the main users of the dark pool are large investors. A certain kind of HFT such as the market making strategy may provide the market liquidity if their usage rate were under some threshold. Keywords: Artificial Market · Dark pool · Large investor. 1 Introduction Dark pools, private financial forums for trading securities, are becoming widely used in finance especially by institutional investors [15]. Dark pools allow in- vestors to trade without showing their orders to anyone else. One of the main advantages of dark pools is their function to significantly reduce the market impact of large orders. Large investors have to constantly struggle with the problem that the market price moves adversely when they buy or sell large blocks of securities. Such market impacts are considered as trading costs for large investors. Hiding the information of large orders in dark pools may decrease market impacts. Moreover, from the viewpoint of a whole market, dark pools may stabilize financial markets by reducing market impacts[7]. -
A Pecking Order of Trading Venues
Journal of Financial Economics 124 (2017) 503–534 Contents lists available at ScienceDirect Journal of Financial Economics journal homepage: www.elsevier.com/locate/jfec R Shades of darkness: A pecking order of trading venues ∗ Albert J. Menkveld a, Bart Zhou Yueshen b, Haoxiang Zhu c, a Vrije Universiteit Amsterdam and Tinbergen Institute, De Boelelaan 1105, Amsterdam 1081 HV, Netherlands b INSEAD, Boulevard de Constance, 77300 Fontainebleau, France c MIT Sloan School of Management and NBER, 100 Main Street E62-623, Cambridge, MA 02142, USA a r t i c l e i n f o a b s t r a c t Article history: We characterize the dynamic fragmentation of U.S. equity markets using a unique data Received 16 September 2015 set that disaggregates dark transactions by venue types. The “pecking order” hypothesis Revised 13 June 2016 of trading venues states that investors “sort” various venue types, putting low-cost-low- Accepted 22 June 2016 immediacy venues on top and high-cost-high-immediacy venues at the bottom. Hence, Available online 8 March 2017 midpoint dark pools on top, non-midpoint dark pools in the middle, and lit markets at the JEL classification: bottom. As predicted, following VIX shocks, macroeconomic news, and firms’ earnings sur- G12 prises, changes in venue market shares become progressively more positive (or less nega- G14 tive) down the pecking order. We further document heterogeneity across dark venue types G18 and stock size groups. D47 Published by Elsevier B.V. Keywords: Dark pool Pecking order Fragmentation 1. Introduction R For helpful comments and suggestions, we thank Bill Schwert (ed- A salient trend in global equity markets over the last itor), an anonymous referee, Mark van Achter, Jim Angel, Matthijs decade is the rapid expansion of off-exchange, or “dark” Breugem, Adrian Buss, Sabrina Buti, Hui Chen, Jean-Edourd Colliard, Ca- role Comerton-Forde, John Core, Bernard Dumas, Thierry Foucault, Frank trading venues. -
DECLARATION in Accordance with Point
DECLARATION In accordance with point 18. of the Market Maker Agreement concluded by and between Erste Befektetési Zrt. and Budapest Stock Exchange, Erste Befektetési Zrt. hereby declare that the company undertakes the market making of the following securities with the conditions described below: -Erste BUX Turbo Long 45 Warrant (ISIN: AT0000A2N9T8; Ticker: EBBUXTL45) Conditions of the market making hereby undertaken by Erste Befektetési Zrt. Market making period within trading hours: Free trading period Bid -ask spread: Market maker median p rice +/ - 20% Minimum order quantity: 100 pieces Validity date of market maker agreement: By termination of the certificate Date: 20.01.2021 _______________________________________ Erste Befektetési Zrt. DECLARATION In accordance with point 18. of the Market Maker Agreement concluded by and between Erste Befektetési Zrt. and Budapest Stock Exchange, Erste Befektetési Zrt. hereby declare that the company undertakes the market making of the following securities with the conditions described below: -Erste BUX Turbo Long 46 Warrant (ISIN: AT0000A2N9U6; Ticker: EBBUXTL46) Conditions of the market making hereby undertaken by Erste Befektetési Zrt. Market making period within trading hours: Free trading period Bid -as k spread: Market maker median price +/ - 20% Minimum order quantity: 100 pieces Validity date of market maker agreement: By termination of the certificate Date: 20.01.2021 _______________________________________ Erste Befektetési Zrt. DECLARATION In accordance with point 18. of the Market Maker Agreement concluded by and between Erste Befektetési Zrt. and Budapest Stock Exchange, Erste Befektetési Zrt. hereby declare that the company undertakes the market making of the following securities with the conditions described below: -Erste BUX Turbo Long 47 Warrant (ISIN: AT0000A2N9V4; Ticker: EBBUXTL47) Conditions of the market making hereby undertaken by Erste Befektetési Zrt. -
Are Market Makers Uninformed and Passive? Signing Trades in the Absence of Quotes
Federal Reserve Bank of New York Staff Reports Are Market Makers Uninformed and Passive? Signing Trades in the Absence of Quotes Michel van der Wel Albert J. Menkveld Asani Sarkar Staff Report no. 395 September 2009 This paper presents preliminary findings and is being distributed to economists and other interested readers solely to stimulate discussion and elicit comments. The views expressed in the paper are those of the authors and are not necessarily reflective of views at the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors. Are Market Makers Uninformed and Passive? Signing Trades in the Absence of Quotes Michel van der Wel, Albert J. Menkveld, and Asani Sarkar Federal Reserve Bank of New York Staff Reports, no. 395 September 2009 JEL classification: G10, G14, G12, G19 Abstract We develop a new likelihood-based approach to signing trades in the absence of quotes. This approach is equally efficient as the existing Markov-chain Monte Carlo methods, but more than ten times faster. It can address the occurrence of multiple trades at the same time and allows for analysis of settings in which trade times are observed with noise. We apply this method to a high-frequency data set of thirty-year U.S. Treasury futures to investigate the role of the market maker. Most theory characterizes the market maker as an uninformed, passive supplier of liquidity. Our findings suggest, however, that some market makers actively demand liquidity for a substantial part of the day and that they are informed speculators. -
Dark Pools and High Frequency Trading for Dummies
Dark Pools & High Frequency Trading by Jay Vaananen Dark Pools & High Frequency Trading For Dummies® Published by: John Wiley & Sons, Ltd., The Atrium, Southern Gate, Chichester, www.wiley.com This edition first published 2015 © 2015 John Wiley & Sons, Ltd, Chichester, West Sussex. Registered office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or trans- mitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher. Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com. Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor men- tioned in this book. -
Informational Inequality: How High Frequency Traders Use Premier Access to Information to Prey on Institutional Investors
INFORMATIONAL INEQUALITY: HOW HIGH FREQUENCY TRADERS USE PREMIER ACCESS TO INFORMATION TO PREY ON INSTITUTIONAL INVESTORS † JACOB ADRIAN ABSTRACT In recent months, Wall Street has been whipped into a frenzy following the March 31st release of Michael Lewis’ book “Flash Boys.” In the book, Lewis characterizes the stock market as being rigged, which has institutional investors and outside observers alike demanding some sort of SEC action. The vast majority of this criticism is aimed at high-frequency traders, who use complex computer algorithms to execute trades several times faster than the blink of an eye. One of the many complaints against high-frequency traders is over parasitic trading practices, such as front-running. Front-running, in the era of high-frequency trading, is best defined as using the knowledge of a large impending trade to take a favorable position in the market before that trade is executed. Put simply, these traders are able to jump in front of a trade before it can be completed. This Note explains how high-frequency traders are able to front- run trades using superior access to information, and examines several proposed SEC responses. INTRODUCTION If asked to envision what trading looks like on the New York Stock Exchange, most people who do not follow the U.S. securities market would likely picture a bunch of brokers standing around on the trading floor, yelling and waving pieces of paper in the air. Ten years ago they would have been absolutely right, but the stock market has undergone radical changes in the last decade. It has shifted from one dominated by manual trading at a physical location to a vast network of interconnected and automated trading systems.1 Technological advances that simplified how orders are generated, routed, and executed have fostered the changes in market † J.D. -
NYSE Arca, Inc
NYSE Arca, Inc. Application for Market Maker* Registration *Includes Market Maker & Lead Market Maker TABLE OF CONTENTS Page Application Process 2 Checklist 3 Explanation of Terms 4 Application for Market Maker (Sections 1-5) 5-10 Revised October 2018 1 of 10 Application Process Filing Requirements Prior to submitting the Application to become a Market Maker, an applicant Broker-Dealer must have completed the Equity Trading Permit (“ETP”) application. A firm will not be eligible for approval as a Market Maker until after their ETP application is approved. Checklist Applicant ETP must complete and submit all materials as required in this Application Checklist (page 4) to [email protected]. If you have questions regarding the application, you may direct them to NYSE Arca Client Relationship Services: Email: [email protected]; Phone: (212) 896-2830. Application Process • Following submission of the Application for Market Maker Registration and supporting documents, NYSE Arca will review the application for completeness, assess the firm’s capital sufficiency, review registration and disclosure information for the Applicant and each listed Market Maker Authorized Trader, and review the Applicant’s written supervisory procedures. • Applicant ETP Broker-Dealers must designate within Section 1 whether they are applying as a Market Maker ETP (“METP”), and/or as a Lead Market Maker ETP (“LETP”). • Applicants who have completed and returned all documents without indication of a statutory disqualification, outstanding debt, civil judgment actions and/or regulatory disciplinary actions will be reviewed by NYSE Arca for approval or disapproval. • NYSE Arca will notify the applicant Broker-Dealer in writing of their decision. -
Market Making Contracts, Firm Value, and the IPO Decision*
Market Making Contracts, Firm Value, and the IPO Decision* Hendrik Bessembinder University of Utah Jia Hao University of Michigan Kuncheng Zheng University of Michigan This Draft: December 2014 Abstract: We examine the effects of secondary market liquidity on firm value and the decision to conduct an Initial Public Offering (IPO). Competitive liquidity provision can lead to market failure as the IPO either does not occur or the IPO price is discounted to reflect that some welfare-enhancing secondary trades do not occur. Market failure arises when uncertainty regarding fundamental value and asymmetric information are large in combination. In these cases, firm value and social welfare are improved by a contract where the firm engages a Designated Market Maker (DMM) to enhance liquidity. Our model implies that such contracts represent a market solution to a market imperfection, particularly for small growth firms. In contrast, proposals to encourage IPOs by use of a larger tick size are likely to be counterproductive. Earlier versions of this manuscript were titled “Market Making Obligations and Firm Value.” The authors thank Robert Battalio, Thierry Foucault, David Hirshleifer, Michael Lemmon, Marios Panayides, Hans Stoll, Avanidhar Subrahmanyam, an anonymous Associate Editor, two anonymous referees, as well as seminar participants at Northwestern University, University of Washington, University of Pittsburgh, Brigham Young University, University of Illinois, Case Western Reserve University, Cass Business School, Southern Methodist University, University of Texas at Austin, the New Economic School, University of Auckland, University of Sydney, University of California at Irvine, Pontifica Universidade Catolica, Fundacao Getulio Vargas, Arizona State University, Cheung Kong Graduate School, Tsinghua University, the Asian Bureau of Finance and Economic Research Conference, the 2013 Financial Management Association Conference, York University, University of Michigan, and Babson College for useful comments. -
The Bright Sides of Dark Liquidity
The Bright sides of Dark Liquidity YUXIN SUN1, GBENGA IBIKUNLE*2, DAVIDE MARE3 This Version: June 2018 Abstract Modern financial markets have experienced fragmentation in lit (displayed) order books as well as an increase in the use of dark (non-displayed) liquidity. Recent dark pool proliferation has raised regulatory and academic concerns about market quality implication. We empirically study the liquidity commonalities in lit and dark venues. We find that compared with lit venues, dark venues proportionally contribute more liquidity to the aggregate market. This is because dark pools facilitate trades that otherwise might not easily have occurred in lit venues when the limit order queue builds up. We also find that the spread of the trades subsquent to dark trades tends to be narrow. This is consistent with the order flow competition between venues in that dark trade might give market makers a signal of uninformed liquidity demand to narrow the spread. Based on the recent dark volume cap regulation under MiFID II, we provide causal evidence that dark trading cap brings a negative impact on transaction cost. JEL classification: G10, G14, G15 Keywords: Dark pools, dark trading, MiFID, Multilateral Trading Facilities (MTFs), Liquidity commonality, trading liquidity, Double Volume Cap (DVC), regulation We thank Carol Alexander, Carlo Gresse, Thomas Martha, Sean Foley, Petko Kalev, Tom Steffen, Khaladdin Rzayev, Satchit Sagade, Monika Trepp, Elvira Sojli, Micheal Brolley and Lars Norden for helpful comments and discussions. We are also grateful to the participants at the 2nd Dauphine Microstructure Workshop, the 1st SAFE Market Microstructure Conference, the 1st European Capital Markets Workshop and the 2018 EFMA conference. -
What Is a Regulation SHO Bona-Fide Market Maker?
What is a Regulation SHO bona-fide market maker? Larry E. Bergmann and James P. Dombach Abstract Larry E. Bergmann Purpose – To summarize and analyze guidance provided by the US Securities and Exchange (Larry.Bergmann@ Commission (“SEC”) on what constitutes “bona-fide market making” for purposes of Regulation SHO’s mmlawus.com) and exception to the locate requirement. James P. Dombach Design/methodology/approach – Explains SEC guidance on this subject, focusing on statements by (James.Dombach@ the SEC and its staff related to Regulation SHO and SEC enforcement matters, including a recent SEC mmlawus.com) are both administrative proceeding providing concrete examples of activity that does not constitute bona-fide attorneys at Murphy & market making. McGonigle P.C. in Findings – While there is still a lot of room for additional SEC guidance on what constitutes bona-fide Washington, DC, USA. market making, the SEC has provided some details on the specific type of trading that would not fall within the Regulation SHO exceptions applying to bona-fide market making activities. However, there is still a large gap between the type of activity that most likely falls within the exception and the concrete examples analyzed by the SEC. Originality/value – Practical guidance from experienced securities lawyers that consolidates SEC guidance on the bona-fide market making exception. Keywords Broker-dealer, US Securities and Exchange Commission (SEC), Bona-fide market making, Regulation SHO Paper type Technical paper Introduction What is a Regulation SHO bona-fide -
Learning Unfair Trading: a Market Manipulation Analysis from the Reinforcement Learning Perspective
Learning Unfair Trading: a Market Manipulation Analysis From the Reinforcement Learning Perspective Enrique Mart´ınez-Miranda and Peter McBurney and Matthew J. Howard Department of Informatics King’s College London fenrique.martinez miranda,peter.mcburney,[email protected] Abstract have names like ramping, wash trading, quote stuffing, lay- ering, spoofing, among others. Spoofing is one of the most Market manipulation is a strategy used by traders to popular strategies that uses non-bona fide orders to improve alter the price of financial securities. One type of ma- nipulation is based on the process of buying or selling the price and is considered illegal by market regulators (Ak- assets by using several trading strategies, among them tas 2013). A similar strategy used by high-frequency traders spoofing is a popular strategy and is considered illegal (HFTs) is called pinging where HFTs place orders without by market regulators. Some promising tools have been the intention of execution, but to find liquidity not displayed developed to detect manipulation, but cases can still be in the order book (where all buy and sell orders are listed found in the markets. In this paper we model spoofing in double auction markets), and has caused controversy as it and pinging trading, two strategies that differ in the le- can be viewed as a manipulative strategy (Scopino 2015). gal background but share the same elemental concept of Studies found in the literature that analyse the problem market manipulation. We use a reinforcement learning of market manipulation have mainly focused on the devel- framework within the full and partial observability of Markov decision processes and analyse the underlying opment of methods for detection.