Presentation Transcript

1. Market MicrostructureLecture 03Daniel Sungyeon Kim

2. Market Structure Market structure = how trading is organized = trading mechanism Most basic distinction is between call market vs. continuous market Q: What is the definition of a call market?
3. More on Market Structure Q: And what is the definition of a continuous market?
4. Summary of Continuous Trading Systems
5. Summary of Continuous Trading Systems Examples: Pre-1997 NASDAQ, Pre-1997 London Stock Exchange, Foreign Exchange, Bonds
6. Summary of Continuous Trading Systems = Limit Order Market Examples: Euronext (merged with NYSE), Tokyo Stock Exchange, ECNs: BATS, DirectEdge, NYSE ARCA
7. Summary of Continuous Trading Systems = Hybrid Examples: Examples: NYSE, Post-1997 NASDAQ, Post-1997 London Stock Exchange, Most Regional Exchanges
8. Summary of Continuous Trading Systems = Search Market = broker puts buyer and seller together = is not a dealer = doesn’t use own money to take a position
9. Search Market Q: Do real estate agents act as dealers?
10. Search Market Securities example: Block trading By convention: Block = 10,000 shares or more For the same reasons as real estate, trading blocks of securities is not feasible brokered market
11. Transparency Q: What does ex-ante transparency mean?
12. Transparency Q: What does ex-post transparency mean?
13. = Ex Ante Transparency = Ex Post Transparency
14. Jain #1 Looking at impact of adding electronic trading: Floor Only  Combined Floor and Electronic Many have taken the extra step:  Closing The Floor and Becoming Electronic Only 
15. Global Shift from Floor to Electronic
16. Global Shift Q: Why switch?
17. Jain #2
18. Country Perform. Relative tick size = Price increment / Average price If Price increment = .01, then prices can be $30.00, $30.01, $30.02, etc. Example: $.01 / $50 = 0.2%
19. Performance variables Measures of exchange performance: Quoted spread = (Ask – Bid) / midpoint Effective spread= (|trade price – midpoint| * 2) / midpoint Realized spread= ({trade price – midpoint(t+5min)}* 2) /(midpoint(t+5min) for buys ({midpoint(t+5min) – trade price}* 2) /(midpoint(t+5min) for sells = alternative measure of market maker’s profit margin = cost to security traders Volatility = standard deviation = risk = bad for investors Trading Turnover = Shares traded / Shares outstanding = how many time the typical share trades in a year
20. More on Country Performance
21. Mech. Performance Q: Going down the page, which type in each group is the best?
22. Developed vs. Emerging Countries
23. Developed vs. Emerging Countries