Execution and Exchanges - Articles & White Papers

Total global debt reached a record high of $306 trillion in the first quarter of 2022, led by a surge in several emerging markets, as well as China and the United States, according to the Institute for International Finance. By the third quarter, it had dropped to $290 trillion but this remains a very high level. When debt…

We characterise the stochastic interaction of learning algorithms as a deterministic system of differential equations to understand their long-term behaviour in a repeated game. In a symmetric bimatrix repeated game, we prove that the dynamics of many learning algorithms converge to the outcomes of pure strategy Nash…

This report, published by the Credit Suisse Research Institute, discusses how macroeconomic imbalances and geopolitics can catalyze change in the current largely USD-​based monetary system, how central bank reserves have evolved so far and may be re-​assessed going forward and sketches out a vision for a gradually more multi…

Despite structural differences between the options and stock markets, few studies have discussed the behavior and impact of high-frequency traders (HFTs) in the options market. Options exchanges identify high-frequency/algorithmic traders as Professional Customers (PCs). In this study, we use granular data that identifies…

Distributed ledger technologies (DLTs) have garnered growing interest in recent years and are making inroads into traditional finance. One purported benefit of DLTs is their ability to bring about “atomic” settlement, a term that is sometimes used to refer to settlement that is both simultaneous and instant. In this post,…

In March 2020, against the backdrop of a worsening Covid crisis, some segments of the money market fund (MMF) industry faced severe redemption pressures. Given their central role within the short term funding market, MMFs were at the heart of financial stability concerns, and legitimately underwent careful reviews by…

Næs, Skjeltorp, and Ødegaard (2011) provide empirical evidence that stock market liquidity contains leading information about future economic activity. Their result suggests a rebalancing of small, increasingly illiquid to large stocks in recession times, an expression of “flight-to-quality”. We show that the relationship no…

This report argues that further centralising bond trading, by encouraging larger parts of the bond market to move onto transparent all-to-all platforms, such as exchange-based CLOBs, is not only feasible, but will also likely improve bond market functioning and will benefit the wider financial system.

The past year has been one of both transition and preparation, paving the way for 2023 to be a year of regulatory implementation and acceptance that current market conditions are the new baseline.

This is the International Capital Market Association (ICMA's) report into global market practices and regulatory policy for the future.

Existing research offers scant guidance regarding how tick size changes affect market quality for all but tick constrained stocks. Using comprehensive depth of book data from MIDAS, we examine both the imposition and conclusion of the tick size pilot (TSP) using quantile and OLS regressions, and perform a more granular…

Though the current requirement of two-day settlement has been around since 2017, the US Securities and Exchange Commission (SEC) has proposed to shorten the settlement cycle in the United States from two business days (T+2) to one (T+1).

The current energy crisis in Europe, fuelled by the disruption of Russian gas supplies, accentuates the need to reform electricity markets. This column sheds light on a new electricity market architecture proposal that aims to strike the right balance between exposing firms and consumers to short-run price signals while…

The FOMC has increased the target interest rate by 3.75 percentage points since March 17, 2022. The authors examine how corporate bond market functioning has evolved along with the changes in monetary policy through the lens of the U.S. Corporate Bond Market Distress Index (CMDI). Although the overall CMDI has deteriorated…

This chapter discusses the structure and functioning of the spot foreign exchange (FX) market. The market structure, which has become far more complex over the past three decades, has mostly evolved endogenously as the global FX market is subject to notably less regulatory oversight than equity and bond markets in most…

We derive closed-form strategies for a broker who provides liquidity to an informed trader and to a noise trader over a finite-time and infinite-time trading horizon. The flow of the noise trader is uninformative and the broker trades with the noise trader at a profit, on average. On the other hand, the informed trader has…

Liquidity is crucial to the many important uses of Treasury securities in financial markets and its availability in the U.S. Treasury securities market has been a concern for policymakers and market participants lately. The authors assess the recent evolution of Treasury market liquidity and its relationship with price…

AFME, in collaboration with eleven other European and international organisations, has published the fifth edition of the “Capital Markets Union – Key Performance Indicators” report, tracking the progress of Europe’s capital markets against nine key performance indicators and analysing the progress over the past five years…

We explore the impact of central clearing on the demand for collateral arising from variation margin calls in the derivatives market. We find that the aggregate demand for collateral is not necessarily minimal when all contracts are centrally cleared. Hence, at least in this respect, increasing the scope of central clearing…

The participation of retail investors in the financial markets contributes to the well-functioning of those markets, improving liquidity and depth of the order book. Yet, it may increase volatility and must be complemented with strong investor protection policies. While some markets have seen a constant growth in retail…