Trading Venues Research Articles

Exploring the principal factors driving the volatility structure of stock trade levels in New Zealand: a Covid-19 perspective

This paper explores factors that drive the volatility structure of New Zealand stock trade levels, with the aim of understanding unusual volatility of stock trade levels that may pose a risk to the critical operations of a trading venue. Weekly number of trades from 2014–2024 for the sampled stocks were examined within principal axis factoring (PAF) and GARCH models. The results showed that three factors accounted for around 60% of volatility in the number of stock trades over the sampled period; they were driven primarily by electricity generation stocks, consumer discretionary stocks, and commercial property stocks respectively. During the sampled period, two subperiods of market shock showed unusual levels of volatility in all principal factors, with the second subperiod, which coincided with the Covid-19 outbreak, being particularly notable. An implication of the study is that given the volatilities of stock trade levels are little studied in the literature, the findings of this study could be a useful complement to existing studies examining stock price volatility for the purposes of mitigating unusual stock trading volatility.

What drives liquidity in the Chinese credit bond markets?

We study the drivers and pricing of liquidity in the Chinese credit bond markets. We document that the liquidity and liquidity effects priced into yield spreads differ significantly across the four major credit bond categories and the two parallel trading venues: the interbank over-the-counter and exchange markets. We analyze the levels of liquidity and the pricing of liquidity effects into credit bond yield spreads using three counterfactuals: a collateral shock to repo eligibility, a crackdown on agent-holding activities, and four liberalization shocks on foreign investment. We identify the bond risk and macroeconomic channels as significant influences on liquidity effects but not the information channel. Our empirical findings are robust to a battery of tests.

Motivations And Effects of NEEQ's Transfer To SSE STAR Market In The Context Of Registration Reform: A Case Study Of TZTEK

NEEQ, officially known as the National Equities Exchange and Quotations, is the third national equity trading venue after Shanghai Stock Exchange and Shenzhen Stock Exchange. The National Equities Exchange and Quotations Corporation Limited (NEEQ Co. Ltd.) was registered with the State Administration for Industry & Commerce (SAIC) on September 20, 2012 with registered capital of RMB 3 billion, and was inaugurated on January 16, 2013 and gradually opening up to all regions nationwide. For small and medium-sized enterprises (SMEs), NEEQ offers a vital financing channel and enhances their liquidity. As a result, the number of enterprises listing on the NEEQ market has surged. However, this growth has brought about certain issues that cannot be ignored and have become increasingly serious. These issues include a high concentration of equity ownership and a decline in market liquidity. Consequently, the trading volume and turnover rate of NEEQ-listed companies have been decreasing year by year. This decline has significantly constrained the growth potential of some promising enterprises, such as TZTEK. These companies, which typically have good growth prospects, are often compelled to consider transferring to a different board in pursuit of sustainable development. This paper will first introduce the research significance and background of this chosen topic. Secondly, it will provide an overview of TZTEK's background of board transfer and transfer process. Then, it will analyze the motivation behind TZTEK's board transfer from the perspectives of financing, shareholder structure, and company valuation. The study will also involve an analysis of market effects, growth capability, and debt repayment capacity for TZTEK, both before and after the board transfer, using a series of relevant data. Finally, the paper will conclude with a summary of the research findings.

Peningkatan Kompetensi Wirausaha Berbasis E-Commerce Di Kalangan Pelaku Usaha Kelurahan Rumbai

The development of increasingly sophisticated technology means that businesses must develop well and keep up with the times. Competition is not something that is rarely encountered, because with competition, companies can try their best in running their business. Entrepreneurship as an economic driver in implementing Indonesia's development growth is considered capable of reducing the unemployment rate by providing employment opportunities. This condition can be seen from various empirical data which states that the existence of MSMEs is quite dominant in the Indonesian economy with a total of 8.71 million business units in 2022. Community service activities are carried out to provide strengthening business competition for entrepreneurs through e-commerce media in Rumbai Village. The method used in this community service uses the Community Based Research method, which is collaborative research with the aim of being a medium that brings together various related parties for common goals, overcoming and Resolving existing complex problems. Through workshops and training, rattan entrepreneurs in Rumbai Village can increase their understanding of social media as a trading venue that has a good impact on business. The evaluation results showed an increase in participants' understanding of the material taught in the workshop. The participants' response to this activity was very positive, with hopes for the continuation of service activities with in-depth material and further training.

An Econometric Analysis of Volatility Discovery

We investigate information processing in the stochastic process driving stock’s volatility (volatility discovery). We apply fractionally cointegration techniques to decompose the estimates of the market-specific integrated variances into an estimate of the common integrated variance of the efficient price and a transitory component. The market weights on the common integrated variance of the efficient price are the volatility discovery measures. We relate the volatility discovery measure to the price discovery framework and formally show their roles on the identification of the integrated variance of the efficient price. We establish the limiting distribution of the volatility discovery measures by resorting to both long span and in-fill asymptotics. The empirical application is in line with our theoretical results, as it reveals that trading venues incorporate new information into the stochastic volatility process in an individual manner and that the volatility discovery analysis identifies a distinct information process than that based on the price discovery analysis.

Markets as dualistic, semi-decentralized organizations

The theoretical ideal of a competitive market is generally assumed to separate organizing from trading, in an implicit dualism. Traders sell or buy within the market but do not organize it. This paper proposes an alternative, more realistic conceptual scheme based on duality, in which organizing and trading are distinct but intertwined. While the exchange of property rights is overseen centrally, many details of market trade are decided locally by traders. Producers and retailers may arrange the trading venue, specify the items traded, set and publish prices, provide information, and transport goods. They cultivate relationships with customers, recasting the pattern of trade and the social structures that underlie the market. Such dualistic, semi-decentralized organizing generates other dualities, including stability-change and continuity–creativity. A duality perspective can encompass the complexity of markets, as well as illustrate the numerous ways they may evolve.

The effects of NASDAQ delisting on firm performance

We empirically investigate the effects of involuntary delisting from the NASDAQ on delisted firms. To disentangle the delisting effects from other factors, we use NASDAQ market volatility during a firm’s delisting grace period as an instrumental variable (IV) and compare firms that ultimately delisted and began trading on over-the-counter markets with those that regained compliance and remained on the NASDAQ. Although delisted firms experienced declines in liquidity, access to capital markets, investments, and performance, these declines are not mainly attributable to delisting. Among various liquidity measures, delisting reduces daily trading volume only for firms whose stocks were actively traded prior to delisting. Similarly, delisting reduces equity issuance only if the firm’s stock was actively traded prior to delisting. Overall, our findings indicate that delisting from a stock exchange is not as costly as commonly believed, supporting recent policy initiatives to provide alternative listing and trading venues for small companies.

MiFIR review: The right balance

Trading in shares in the European Union (EU) is fragmented across a large number of execution venues applying varying degrees of transparency. The review of the Markets in Financial Instruments Regulation (MiFIR) aims at creating the right conditions for the establishment of an entity, the consolidated tape provider, that provides a consolidated picture of core trading data to the market. Co-legislators principally disagreed on whether or not such a consolidated picture should include close to real-time data on prices and volumes on all pre-trade transparent trading venues (pre-trade data). Authors argue that important use-cases require the inclusion of pre-trade data and that the provisional political agreement reached on 29th June rightly recognises this. The review of MiFIR also includes amendments to the conditions under which individual execution venues are required to publish such pre-trade data. While there are good reasons for allowing ‘dark trading’, too much dark trading could harm the quality of price formation for shares. There is no strong evidence that the ‘volume cap’ which caps certain variants of dark trading has positive effects. The authors argue in this paper that a holistic and data-based approach to capping dark trading can contribute to the quality of price formation for shares. The consolidated tape will provide relevant data for such an approach.

Where does ex‐dividend trading occur: An examination of trading venues around dividends

AbstractWe examine the fragmentation of trading around the ex‐dividend date. We argue that the taker‐maker and dark trading venues provide potential dividend capture traders a more favorable platform than the maker‐taker venue(s) given the price improvement, lower queues, and lower net transaction costs. Our evidence indicates that taker‐maker (dark) venue market share decreases (increases) on cum‐dividend days but reverts to normal levels on the ex‐dividend day. Additionally, we find fragmented trading impacts the ex‐dividend price change and improves price efficiency. Finally, we find evidence that retail trades are associated with potential dividend‐capture trading.

Does the Prohibition of Trade-Through Hurt Liquidity Demanders?

The Impact of the Prohibition of Trade-through In the paper titled “Does the Prohibition of Trade-Through Hurt Liquidity Demanders?” the authors explore the effects of the order protect rule (OPR) in the United States, which prohibits any trade-through in the stock market that does not execute at the best possible price among fast trading venues. The study found that, whereas trade-throughs may offer flexible trading strategies that can benefit liquidity demanders, the benefits are insignificant for most cases, especially for small trades and stocks with fast resilience. The paper suggests that the current separate regulations for fast and slow venues may be extended to differentiate stocks with fast and slow resilience speeds. The results are supported by a case study using the data from the Australian Securities Exchange. Overall, this study supports the regulation of the OPR.

Banning dark pools: Venue selection and investor trading costs

We analyze the relation between transaction costs and venue choice using proprietary transaction-level data from institutional trade executions in the U.K. equity market. We show that, for a given investor, a higher share of dark trading (midpoint dark pools) is associated with lower execution costs. In the context of a recent ban on dark trading, we provide evidence consistent with migration towards substitute trading venues such as periodic auctions, which has mitigated adverse effects on trading costs for large investors. We also provide micro-evidence on Menkveld et al.’s (2017) pecking order theory of venue choice over the life-cycle of large parent orders.

Tunisian corporate bond market liquidity: a qualitative approach

PurposeThis study aims to explore the failures of Tunisian secondary corporate bond market liquidity to understand the determinants of corporate bond market liquidity at large.Design/methodology/approachWe adopted a qualitative approach to studying the Tunisian Stock Exchange. Dealers’ perceptions were collected through semi-structured face-to-face interviews; the data was recorded, transcribed and thematically analysed.FindingsSecondary corporate bond market failures are due, in part, to microstructural choices – especially the use of an over-the-counter market as a trading venue. The absence of a corporate bond yield curve, a narrow investor base, market participants’ lack of financial education and authorities’ attitudes are equally responsible.Research limitations/implicationsThis study is useful to researchers, policymakers and practitioners, as it identifies microstructural and other factors affecting the Tunisian secondary corporate bond market. We interviewed only Tunisian dealers while ignoring other categories of market participants. Furthermore, a focus group discussion could have improved our understanding of the determinants of the Tunisian secondary corporate bond market.Originality/valueThis paper aimed to qualitatively discuss several issues related to the Tunisian secondary corporate bond market. To date, little academic research has addressed this topic in the illiquid and non-transparent corporate bond markets.

Technology and the geography of the foreign exchange market

We analyze the impact of technology on the production and trade in services, focusing on the location of foreign exchange transactions and the effect of submarine fiber-optic cable connections. Cable connections between local markets and major financial centers reduce the costs of trading currencies locally and increase the share of currency transactions taking place in the issuing country. But they also attenuate the effect of existing spatial frictions that prevent transactions from moving offshore to take advantage of agglomeration economies and thick-market advantages of major financial centers. In practice, this second effect dominates. Our estimates suggest that the advent of cable connections boosted the share in global turnover of London, the world’s largest trading venue, by as much as one-third.

DLT-Based Trading Venues and EU Capital Markets Legislation: State of the Art and Perspectives under the DLT Pilot Regime

DLT-Based Trading Venues and EU Capital Markets Legislation: State of the Art and Perspectives under the DLT Pilot Regime

A verifiable model of a minimal market operating sequentially, with price and time discrete

This research presents a minimal computational market model, i.e., a model of a trading venue, with sequential order matching, in a declarative style, and proceeds to demonstrate how some fundamental properties can be formally proved. It is a challenging task to formally certify the properties of a fundamental system in any realm of human endeavor, especially of systems with infinite state space. With the recent development of theoretical frameworks based on formal logic, it is now possible (albeit very difficult) to both formalize and reason about an object system in the same language. This research derives from the previous research presented in [1], and represents a simplification to obtain a minimal model. The computational model of a minimal market, presented here in a declarative style, is important from the perspective of both market design and verification.

Algorithmic market making in dealer markets with hedging and market impact

AbstractIn dealer markets, dealers provide prices at which they agree to buy and sell the assets and securities they have in their scope. With ever increasing trading volume, this quoting task has to be done algorithmically in most markets such as foreign exchange (FX) markets or corporate bond markets. Over the last 10 years, many mathematical models have been designed that can be the basis of quoting algorithms in dealer markets. Nevertheless, in most (if not all) models, the dealer is a pure internalizer, setting quotes and waiting for clients. However, on many dealer markets, dealers also have access to an interdealer market or even public trading venues where they can hedge part of their inventory. In this paper, we propose a model taking this possibility into account therefore allowing dealers to externalize part of their risk. The model displays an important feature well known to practitioners that within a certain inventory range, the dealer internalizes the flow by appropriately adjusting the quotes and starts externalizing outside of that range. The larger the franchise, the wider is the inventory range suitable for pure internalization. The model is illustrated numerically with realistic parameters for USDCNH spot market.

Solvability of Differential Riccati Equations and Applications to Algorithmic Trading with Signals

ABSTRACT We study a differential Riccati equation (DRE) with indefinite matrix coefficients, which arises in a wide class of practical problems. We show that the DRE solves an associated control problem, which is key to provide existence and uniqueness of a solution. As an application, we solve two algorithmic trading problems in which the agent adopts a constant absolute risk-aversion (CARA) utility function, and where the optimal strategies use signals and past observations of prices to improve their performance. First, we derive a multi-asset market making strategy in over-the-counter markets, where the market maker uses an external trading venue to hedge risk. Second, we derive an optimal trading strategy that uses prices and signals to learn the drift in the asset prices.

The Effect of Reporting Opacity on Trading Opacity: New Evidence from American Depositary Receipt Trades in Dark Pools*

ABSTRACTTrading volume is increasingly shifting to dark venues, and the causes of this move are not well understood. We examine whether a firm's reporting opacity affects its dark pool trading and provide robust evidence that (partly) explains this volume migration. Exploiting the exogenous variation in home‐country reporting opacity in a sample of American Depositary Receipts (ADRs) and using multiple metrics for reporting opacity, we find that greater opacity associates with increased dark pool trading. This relation holds after controlling for firms' information environments, country‐specific governance issues, observable differences between ADRs and other securities that trade in dark pools (matched sample analysis), volume migration to dark pools during earnings announcements, informed trading in lit versus dark venues, ADR levels, IFRS reporting requirements, and the possible endogenous determination of home‐country reporting opacity and dark pool volume. The positive relation is stronger for ADRs held by (quasi‐indexing) institutions with low turnover and diversified holdings and weaker for ADRs favored by (transient) institutions that trade frequently and (dedicated) institutions that hold concentrated portfolios. Bid‐ask spreads are greater for higher opacity ADRs that trade in dark pools, indicating that reporting opacity is associated with the negative effect of dark pool trading on market quality. Our findings help inform the current debate on off‐exchange trading by showing how reporting regimes affect the trading venue choice.

MiFID II and the Regulation of Multilateral Trading in OTC Derivatives: Is the OTF Fit for Purpose?

Abstract This article identifies barriers to the complete implementation of the organized trading facility (OTF) as a new category of trading venue under the Markets in Financial Instruments Directive (Directive 2014/65/EU) (MiFID II). It argues that attempts to reconcile the competing claims of incumbent regulated markets and dealer banks operating broker crossing networks in the cash securities markets led to a market design that is not suitable for the over-the-counter (OTC) derivatives markets. The result has been that multilateral trading in the wholesale secondary markets has not been incorporated in trading venues, as was intended, and that changes that are better aligned to market requirements are needed. These include reform of requirements transposed from the cash securities markets, such as standardized fee structures, and relaxation of restrictions on interactions between an OTF and other OTFs or systematic internalizers.

MIFID II and EMIR impact on Romanian banking system performance

Abstract MIFID II/MiFIR represents comprehensive financial market reforms in trading and settlement of financial instruments. The greatest impact of the new regulatory framework in the banking sector relates to pricing, trading, and reporting of banking products and classification of financial institutions. The new role of the financial market infrastructure provides more protection for bank customers and significantly increases market transparency. Banks are required to show their customers the best execution price on the relevant trading venues, transaction costs and market behavior. The regulation will be aligned with other financial market regulations of over-the-counter markets and market abuse protection to avoid regulatory overlap - European Market Infrastructure Regulation (EMIR). The new regulatory framework requires the banking sector to fully comply with the rules governing the banking system of the European Union. Banks must incur significant costs in order to restructure internal processes, acquire new technological support, and forego additional profits in competitive and transparent markets. This study analyses the impact of MiFID II/MiFIR and EMIR implementation on local banks’ performance (credit institutions, Romanian legal persons). Using a unique dataset from banks that have been operating in Romania over the period 2004-2020, it is shown that the implementation of the new regulatory framework did not affect the net trading income ratio of the selected banks. Moreover, the average trading asset ratio in the post-financial crisis period increased in comparison with the average trading asset ratio in the pre-financial crisis period. Local banks that took advantage of the large economies of scale obtained due to branch banking did not reduce their investment banking activities and product offerings to customers in the period following the introduction of the regulatory framework. Most of the costs of implementing the new regulatory framework were borne only by the ultimate parents of the controlled Romanian subsidiaries. All subsidiary banks benefited equally from these economies of scale.