A Review of Stock Market Microstructure

Abstract

This paper provides a review of the market microstructure of the Australian Stock Exchange, five Asian Stock Exchanges, four North American Stock Exchanges and eight European Stock Exchanges. The scope of this review is to present a broad overview of the microstructure of the eighteen selected markets. This encompasses a review of trading mechanisms, pre and post-trade transparency, opening/closing design and other relevant microstructure issues including short selling, principal trading and crossing rules. Examining the microstructure of six of the largest and most influential Stock Exchanges (Exchanges) in the Asian region (including the Australian Stock Exchange), four of the worlds most dynamic markets in North America and eight of Europe's largest and progressive Exchanges allows us to derive a unique perspective of market microstructure at the start of the 21st Century. There are significant differences in microstructure between regions and it is clear that historical, economic and political developments are of major importance in explaining these differences. In addition to differences between regions we observe numerous idiosyncrasies between individual Exchanges. These differences between regions and between individual Exchanges are readily apparent throughout this review. Such a wide-ranging review allows us to draw many conclusions regarding the current themes/trends in market microstructure and issues/challenges facing Exchanges. The review therefore provides a valuable microstructure guide that may be used as a source for future research ideas and to support policy development.