DOCSLIB.ORG

Dark Pools and High Frequency Trading for Dummies

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
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. LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: WHILE THE PUBLISHER AND AUTHOR HAVE USED THEIR BEST EFFORTS IN PREPARING THIS BOOK, THEY MAKE NO REPRESENTATIONS OR WARRAN- TIES WITH THE RESPECT TO THE ACCURACY OR COMPLETENESS OF THE CONTENTS OF THIS BOOK AND SPECIFICALLY DISCLAIM ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IT IS SOLD ON THE UNDERSTANDING THAT THE PUBLISHER IS NOT ENGAGED IN RENDERING PROFESSIONAL SERVICES AND NEITHER THE PUBLISHER NOR THE AUTHOR SHALL BE LIABLE FOR DAMAGES ARISING HEREFROM. IF PROFESSIONAL ADVICE OR OTHER EXPERT ASSIS- TANCE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL SHOULD BE SOUGHT. For general information on our other products and services, please contact our Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at (001) 317-572-3993, or fax 317-572-4002. For technical support, please visit www.wiley.com/techsupport. For technical support, please visit www.wiley.com/techsupport. A catalogue record for this book is available from the British Library. ISBN 978-1-118-87919-1 (hardback/paperback) ISBN 978-1-118-87929-0 (ebk) ISBN 978-1-118-87930-6 (ebk) Printed in Great Britain by TJ International, Padstow, Cornwall 10 9 8 7 6 5 4 3 2 1 Contents at a Glance Introduction ................................................................ 1 Part I: Getting Started with Dark Pools ......................... 5 Chapter 1: Focusing on Dark Pools and High Frequency Trading, Just the Basics ...... 7 Chapter 2: Taking a Dip into Dark Pools .......................................................................15 Chapter 3: Grappling with the Ins and Outs of Securities Markets ...........................25 Part II: Diving into Dark Pool Markets ........................ 37 Chapter 4: Introducing Dark Pool Providers ................................................................39 Chapter 5: Meeting the Players and Places ..................................................................53 Chapter 6: Regulating Dark Pools ..................................................................................65 Part III: Coming to Grips with Automated Trading ........ 77 Chapter 7: Comprehending Automated Trading .........................................................79 Chapter 8: Grasping Standard Order Types .................................................................93 Chapter 9: Identifying the Special Order Types .........................................................105 Chapter 10: Delving into High Frequency Trading ....................................................119 Chapter 11: Understanding Key High Frequency Trading Strategies......................133 Part IV: Being Aware of the Risks of Dark Pools......... 147 Chapter 12: Jockeying Too Much for Position ...........................................................149 Chapter 13: The Ins and Outs of Flash Crashes .........................................................163 Part V: The Part of Tens ........................................... 181 Chapter 14: Ten of the Best Dark Pool/HFT Websites ..............................................183 Chapter 15: Ten Ways to Swim Safely in Dark Pools .................................................191 Chapter 16: Ten Common Algorithmic Strategies .....................................................199 Chapter 17: Ten Things to Know About Market Microstructure .............................207 Index ...................................................................... 215 Table of Contents Introduction ................................................................. 1 About This Book ..............................................................................................1 Foolish Assumptions .......................................................................................2 Icons Used in This Book .................................................................................3 Beyond the Book .............................................................................................3 Where to Go from Here ...................................................................................4 Part I: Getting Started with Dark Pools .......................... 5 Chapter 1: Focusing on Dark Pools and High Frequency Trading, Just the Basics . 7 Defining Dark Pools: Why They’re an Investment Option ..........................8 Explaining What High Frequency Trading Is ..............................................10 Knowing Who’s Involved When Investing in Dark Pools ..........................11 Brokers can make or break you .........................................................11 The other important folk ....................................................................12 Looking at the Order Types .........................................................................12 Considering the regular order types .................................................13 Eyeing the special order types ...........................................................13 Regulating the Markets: Legislators Take Action ......................................13 Chapter 2: Taking a Dip into Dark Pools . 15 Taking a Snapshot of Dark Pools: What They Are and Aren’t .................15 Settled outside the public eye ............................................................16 Need for secrecy: Dark versus lit .......................................................16 Improving price ....................................................................................17 Examining How Dark Pools Work: Step by Step ........................................18 Weighing the Rewards and the Risks ..........................................................19 Identifying potential rewards .............................................................19 Recognising the risks and preparing for them .................................20 Investigating Whether Your Trades Are Exchanged in Dark Pools .........21 Asking your broker the right questions ............................................21 Sleuthing on your own if you don’t use a broker .............................22 Making the Best of Your Transactions .......................................................23 Chapter 3: Grappling with the Ins and Outs of Securities Markets . 25 Figuring Out Pricing: The World of Bids and Offers ..................................25 Grasping how pricing works ...............................................................26 Looking at opening and closing prices .............................................28 Looking at the highest and lowest prices .........................................28 vi Dark Pools & High Frequency Trading For Dummies Making Buying and Selling Easier: Liquidity ..............................................29 Market liquidity ....................................................................................31 Off-market liquidity ..............................................................................32 Understanding the Importance of Market Makers ....................................32 Using VWAP and MVWAP ...................................................................33 Getting to grips with order routing ...................................................34 Focusing on price/time priority .........................................................35 Eyeing direct market access ...............................................................36 Part II: Diving into Dark Pool Markets ......................... 37 Chapter 4: Introducing Dark Pool Providers . 39 Comparing the Different Types of Dark Pool Providers ...........................40 Big-time investments: Block-oriented dark pools ............................40 No minimum shares required: Streaming liquidity pools...............41 Crossing pools ......................................................................................41
Load more

Recommended publications
  • Ethics in Financial Markets
    Chapter Five Ethics in Financial Markets Anything that can be owned can be traded, and if trading in something is frequent, a market probably exists for that purpose. This holds true not only for commodities and valuable objects, such as pork bellies and French Impres- sionist paintings, but also for financial instruments of all kinds. However, unlike pork bellies, which can be carved up and packaged only in limited ways, financial instruments can take a wide variety of forms for trade in many dif- ferent markets. With puts and calls, swaps and strips, and a host of other colorfully named instruments, the possibilities for trading in financial markets are limited only by human inventiveness and the constraints of law—which may often be gotten around with even more inventiveness. The broad aim of financial market regulation is to secure “fair and orderly markets” or “just and equitable principles of trade.” These expressions, which are standard in securities law and market rules, combine the economic value of efficiency with an ethical concern for fairness or equity, thereby giving rise to the familiar equity/efficiency trade-off. When applied to markets, the concepts of fairness, justice, and equity (which are roughly synonyms) serve mainly to forbid fraud and manipulation, the violation of certain rights, and the exploitation of asymmetries in such matters as information and bargaining power. Prohibitions of unfair market practices are designed to protect both market participants and the integrity of markets themselves, which cannot function properly when they lack fairness. In addition to an examination of what constitutes fairness in markets, this chapter examines three specific areas where unfairness is often alleged.
    [Show full text]
  • 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].
    [Show full text]
  • Effects of the Limit Order Book on Price Dynamics
    Effects of the Limit Order Book on Price Dynamics Tolga Cenesizoglu Georges Dionne Xiaozhou Zhou November 2014 CIRRELT-2014-60 Effects of the Limit Order Book on Price Dynamics Tolga Cenesizoglu1, Georges Dionne1,2,*, Xiaozhou Zhou1,2 1 Department of Finance, HEC Montréal, 3000 Côte-Sainte-Catherine, Montréal, Canada H3T 2A7 2 Interuniversity Research Centre on Enterprise Networks, Logistics and Transportation (CIRRELT) Abstract. In this paper, we analyze whether the state of the limit order book affects future price movements in line with what recent theoretical models predict. We do this in a linear vector autoregressive system which includes midquote return, trade direction and variables that are theoretically motivated and capture different dimensions of the information embedded in the limit order book. We find that different measures of depth and slope of bid and ask sides as well as their ratios cause returns to change in the next transaction period in line with the predictions of Goettler, Parlour, and Rajan (2009) and Kalay and Wohl (2009). Limit order book variables also have significant long term cumulative effects on midquote return, which is stronger and takes longer to be fully realized for variables based on higher levels of the book. In a simple high frequency trading exercise, we show that it is possible in some cases to obtain economic gains from the statistical relation between limit order book variables and midquote return. Keywords. High frequency limit order book, high frequency trading, high frequency transaction price, asset price, midquote return, high frequency return. Results and views expressed in this publication are the sole responsibility of the authors and do not necessarily reflect those of CIRRELT.
    [Show full text]
  • The Future of Computer Trading in Financial Markets an International Perspective
    The Future of Computer Trading in Financial Markets An International Perspective FINAL PROJECT REPORT This Report should be cited as: Foresight: The Future of Computer Trading in Financial Markets (2012) Final Project Report The Government Office for Science, London The Future of Computer Trading in Financial Markets An International Perspective This Report is intended for: Policy makers, legislators, regulators and a wide range of professionals and researchers whose interest relate to computer trading within financial markets. This Report focuses on computer trading from an international perspective, and is not limited to one particular market. Foreword Well functioning financial markets are vital for everyone. They support businesses and growth across the world. They provide important services for investors, from large pension funds to the smallest investors. And they can even affect the long-term security of entire countries. Financial markets are evolving ever faster through interacting forces such as globalisation, changes in geopolitics, competition, evolving regulation and demographic shifts. However, the development of new technology is arguably driving the fastest changes. Technological developments are undoubtedly fuelling many new products and services, and are contributing to the dynamism of financial markets. In particular, high frequency computer-based trading (HFT) has grown in recent years to represent about 30% of equity trading in the UK and possible over 60% in the USA. HFT has many proponents. Its roll-out is contributing to fundamental shifts in market structures being seen across the world and, in turn, these are significantly affecting the fortunes of many market participants. But the relentless rise of HFT and algorithmic trading (AT) has also attracted considerable controversy and opposition.
    [Show full text]
  • I Mercati Veloci: Il Trading Ad Alta Frequenza
    Corso di Laurea Magistrale in Economia e Finanza (Ordinamento ex D.M. 270/2004) Tesi di Laurea Magistrale I Mercati veloci: il Trading ad Alta Frequenza Relatore Ch. Prof. Marcella LUCCHETTA Correlatore Ch. Prof. Antonio PARADISO Laureando Francesco CARUZZO Matricola 842173 Anno Accademico 2016 / 2017 INDICE INTRODUZIONE…………………………………………………………...…………………4 CAPITOLO I EVOLUZIONE DEL TRADING ELETTRONICO 1.1 Evoluzione storica ed informatizzazione del Trading…………………….……………6 1.2 Drivers dello sviluppo del AT/HFT………………………………………….…………...8 1.3 Flash Crash: 6 Maggio 2010………………………………………………...…………….12 CAPITOLO II HIGH FREQUENCY TRADING: DEFINIZIONI E CONCETTI CONNESSI 2.1 Trading algoritmico……………………………………………...………………………..14 2.2 High Frequency Trading………………………………………..………………………..16 2.3 Concetti connessi……………………………………………………….…………………20 2.2.1 Market making…………………………………………………..…………………20 2.2.2 Quantitative Portfolio Management (QPM)…………………………………….21 2.2.3 Smart Order Routing (SOR)………………………………………………………23 CAPITOLO III STRATEGIE HIGH FREQUENCY TRADING 3.1 Strategie passive……………………………………………………………….………….26 3.2 Strategie aggressive……………………………………………………………….………33 3.2.1 Politiche riguardanti le strategie HF aggressive……………………….……….38 2 CAPITOLO IV IMPATTI POSITIVI E POSSIBILI EFFETTI NEGATIVI DEL HIGH FREQUENCY TRADING 4.1 Impatti positivi del Trading ad Alta Frequenza…………………………….…………42 4.2 Impatti negativi del Trading ad Alta Frequenza………………………………………47 CAPITOLO V TREND E PROFITTABILITA’ DEL TRADING AD ALTA FREQUENZA 5.1 Order to Trade Ratio (OTR)…………………………………………………...…………57
    [Show full text]
  • Portfolio Management Under Transaction Costs
    Portfolio management under transaction costs: Model development and Swedish evidence Umeå School of Business Umeå University SE-901 87 Umeå Sweden Studies in Business Administration, Series B, No. 56. ISSN 0346-8291 ISBN 91-7305-986-2 Print & Media, Umeå University © 2005 Rickard Olsson All rights reserved. Except for the quotation of short passages for the purposes of criticism and review, no part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior consent of the author. Portfolio management under transaction costs: Model development and Swedish evidence Rickard Olsson Master of Science Umeå Studies in Business Administration No. 56 Umeå School of Business Umeå University Abstract Portfolio performance evaluations indicate that managed stock portfolios on average underperform relevant benchmarks. Transaction costs arise inevitably when stocks are bought and sold, but the majority of the research on portfolio management does not consider such costs, let alone transaction costs including price impact costs. The conjecture of the thesis is that transaction cost control improves portfolio performance. The research questions addressed are: Do transaction costs matter in portfolio management? and Could transaction cost control improve portfolio performance? The questions are studied within the context of mean-variance (MV) and index fund management. The treatment of transaction costs includes price impact costs and is throughout based on the premises that the trading is uninformed, immediate, and conducted in an open electronic limit order book system. These premises characterize a considerable amount of all trading in stocks.
    [Show full text]
  • Pre-Arranged Trading in the Securities Market 17 3.3
    Page 1 of 1 23 May 2018 Circular No. DC/AM - 29 of 2018 SGX LAUNCHES SERIES 2 OF TRADE SURVEILLANCE HANDBOOK The inaugural Trade Surveillance Handbook was published in September 2016 as part of SGX’s collaborative efforts with Members to combat potential irregular trading activities, and enhance surveillance tools of Members. To build on these efforts, SGX has developed a second series of the Trade Surveillance Handbook (“Handbook 2”) with the aim to promulgate fair trading practices and uphold market integrity in our marketplace. Trade Surveillance Handbook – Series Two Handbook 2, featuring Wash trades, Order Management during Opening Routine and Momentum Ignition, seeks to provide Members with a better understanding of SGX’s expectations in relation to these trading practices in our derivatives markets. The Handbook also includes a set of surveillance guidelines and markers which Members may incorporate in detecting and examining these trading malpractices. This Handbook further provides as illustration, two cases heard before the independent Disciplinary Committee so that Members can appreciate the assessments and considerations of SGX and the Disciplinary Committee. The third case study sets out guidelines for Members and Trading Representative to consider in accepting and executing customers’ orders in the securities market. The Trade Surveillance Handbook 2 is attached in the Appendix. SGX to Continue Collaboration with Members and Stakeholders SGX will continue to work closely with Members and stakeholders to uphold robust compliance and surveillance standards, and encourage early disruption of potential irregular trading activities. All these are crucial to promoting greater investor confidence in our marketplace. Your feedback and questions on the Handbook are most welcome.
    [Show full text]
  • International Algorithmic and High Frequency Trading Summit
    TH NovemberTH & 15 14 Mexico City WWW.RISKMATHICS.COM …” Two DAY SUMMIT WITH THE MOST ACKNOWLEDGED AUTHORITIES AND THE BIG PLAYERS IN THE TRADING INDUSTRY WORLD-WIDE” DAVID LEINWEBER GEORGE KLEDARAS MARCOS M. LÓPEZ DE MARCO AVELLANEDA DAN ROSEN YOUNG KANG JORGE NEVID Center for Innovative Founder & Chairman PRADO Courant Institute CEO Global Head of Sales & Electronic Trading Financial Technology FixFlyer Head of Global of Mathematical R2 Financial Algorithmic Products Acciones y Valores Lawrence Berkeley Lab Quantitative Research Sciences, NYU and Technologies Citigroup Banamex Tudor Investment Corp. Senior Partner, Finance Concepts LLC SEBASTIÁN REY CARLOS RAMÍREZ JOHN HULL KARLA SILLER VASSILIS VERGOTIS SANDY FRUCHER JULIO BEATON Electronic Trading Banorte - IXE Toronto University National Banking and Executive Vice President Vice Chairman TradeStation GBM Casa de Bolsa Securities Commission European Exchange NASDAQ OMX Casa de Bolsa CNBV (Eurex) RiskMathics, aware that the most important factor to develop and consolidate the financial markets is training and promoting a high level financial culture, will host: “Algorithmic and High Frequency Trading Summit”, which will have the participation of leading market practitioners who have key roles in the financial industry locally and internationally. Currently the use of Automated/Black-Box trading in combination with the extreme speed in which orders are sent and executed (High Frequency Trading) are without a doubt the most important trends in the financial industry world-wide. The possibility to have direct access to the markets and to send burst orders in milliseconds, has been a fundamental factor in the exponential growth in the number of transactions that we have seen in recent years.
    [Show full text]
  • 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.
    [Show full text]
  • Theoretical and Practical Aspects of Algorithmic Trading Dissertation Dipl
    Theoretical and Practical Aspects of Algorithmic Trading Zur Erlangung des akademischen Grades eines Doktors der Wirtschaftswissenschaften (Dr. rer. pol.) von der Fakult¨at fuer Wirtschaftwissenschaften des Karlsruher Instituts fuer Technologie genehmigte Dissertation von Dipl.-Phys. Jan Frankle¨ Tag der m¨undlichen Pr¨ufung: ..........................07.12.2010 Referent: .......................................Prof. Dr. S.T. Rachev Korreferent: ......................................Prof. Dr. M. Feindt Erkl¨arung Ich versichere wahrheitsgem¨aß, die Dissertation bis auf die in der Abhandlung angegebene Hilfe selbst¨andig angefertigt, alle benutzten Hilfsmittel vollst¨andig und genau angegeben und genau kenntlich gemacht zu haben, was aus Arbeiten anderer und aus eigenen Ver¨offentlichungen unver¨andert oder mit Ab¨anderungen entnommen wurde. 2 Contents 1 Introduction 7 1.1 Objective ................................. 7 1.2 Approach ................................. 8 1.3 Outline................................... 9 I Theoretical Background 11 2 Mathematical Methods 12 2.1 MaximumLikelihood ........................... 12 2.1.1 PrincipleoftheMLMethod . 12 2.1.2 ErrorEstimation ......................... 13 2.2 Singular-ValueDecomposition . 14 2.2.1 Theorem.............................. 14 2.2.2 Low-rankApproximation. 15 II Algorthmic Trading 17 3 Algorithmic Trading 18 3 3.1 ChancesandChallenges . 18 3.2 ComponentsofanAutomatedTradingSystem . 19 4 Market Microstructure 22 4.1 NatureoftheMarket........................... 23 4.2 Continuous Trading
    [Show full text]
  • The Flash Crash of May 2010: Accident Or Market Manipulation? Chris Rose, Capella University, USA
    Journal of Business & Economics Research – January, 2011 Volume 9, Number 1 The Flash Crash Of May 2010: Accident Or Market Manipulation? Chris Rose, Capella University, USA ABSTRACT On May 6th., 2010, the Dow fell about a thousand points in a half hour and Wall Street lost $800 billion of value. Some claim that it was just an isolated incident and there was nothing nefarious but with the majority of trading being done by electronic exchanges and with the increase in High Frequency Trading, evidence is emerging that the crash just might have been a case of deliberate manipulations of the market. Keywords: Flash crash; market manipulation; SEC; NYSE BACKGOUND tock markets today are very different from the first organized stock exchange, which was created in 1792 at Wall Street, New York. There a small group of financial leaders signed an agreement on fees, rules and S regulations that would apply in transactions. Every day securities were auctioned and the seller paid a commission on each stock or bond sold. These trades took place in a free and open market where willing buyers and sellers assembled and freely exchanged goods, services and information. Since 1998, the Securities and Exchange Commission (SEC) authorized the formation of electronic exchanges, so that anyone with a computer can compete within established markets such as the New York Stock Exchange (NYSE). About 97% of NYSE trades today are executed by computers on electronic communication networks (ECNs) which in the last decade have quickly replaced traders, trading on floors as the main global venue for buying and selling every asset, derivative, and contract (Stokes, 2009).
    [Show full text]
  • The Order Book As a Queueing System: Average Depth and Influence of the Size of Limit Orders Ioane Muni Toke
    The order book as a queueing system: average depth and influence of the size of limit orders Ioane Muni Toke To cite this version: Ioane Muni Toke. The order book as a queueing system: average depth and influence of the size of limit orders. Quantitative Finance, Taylor & Francis (Routledge), 2015, 15 (5), pp.795-808. 10.1080/14697688.2014.963654. hal-01006410 HAL Id: hal-01006410 https://hal.archives-ouvertes.fr/hal-01006410 Submitted on 16 Jun 2014 HAL is a multi-disciplinary open access L’archive ouverte pluridisciplinaire HAL, est archive for the deposit and dissemination of sci- destinée au dépôt et à la diffusion de documents entific research documents, whether they are pub- scientifiques de niveau recherche, publiés ou non, lished or not. The documents may come from émanant des établissements d’enseignement et de teaching and research institutions in France or recherche français ou étrangers, des laboratoires abroad, or from public or private research centers. publics ou privés. The order book as a queueing system: average depth and influence of the size of limit orders Ioane Muni Toke ERIM, University of New Caledonia BP R4 98851 Noumea CEDEX, New Caledonia [email protected] Applied Maths Laboratory, Chair of Quantitative Finance Ecole Centrale Paris Grande Voie des Vignes, 92290 Chˆatenay-Malabry, France [email protected] Abstract In this paper, we study the analytical properties of a one-side order book model in which the flows of limit and market orders are Poisson processes and the distribution of lifetimes of cancelled orders is exponen- tial.
    [Show full text]