Execution and Exchanges - Articles & White Papers

Most corporate bond research on liquidity and dealer inventories is based on the USD-denominated bonds transactions in the US reported to TRACE. Some of these bonds, however,are also traded in Europe, and those trades are not subject to the TRACE reporting requirements. Leveraging our access to both TRACE and ZEN, the UK’s…

The price formation function stems from the fact that the ‘goods’ being exchanged in equity markets are claims to uncertain future cash flows. Therefore, an important function of a stock exchange is an information-gathering and distribution process which ensures that market participants are sufficiently informed about the…

We highlight the fintech innovations driving the digitization and disruption of financial services.

The last quarter of 2018 saw the publication of a number of new rules and regulations by the China Securities Regulatory Commission (CSRC), the Shanghai Stock Exchange (SSE) and London Stock Exchange, which together provide the regulatory framework for the introduction of the Shanghai-London Stock Connect (Stock Connect)…

We use stock exchange message data to quantify the negative aspect of high-frequency trading, known as “latency arbitrage.” The key difference between message data and widely-familiar limit order book data is that message data contain attempts to trade or cancel that fail. This allows the researcher to observe both winners…

This paper builds a model of stock exchange competition tailored to the institutional and regulatory details of the modern U.S. stock market. The model shows that under the status quo market design: (i) trading behavior across the seemingly fragmented exchanges is as if there is just a single synthesized exchange; (ii) as a…

When the dot-com era commenced in the early 1990s, companies weren’t quite sure what to make of the internet, only that it represented something big. Investor interest was enormous, but questions re-mained: How do you monetize applications for markets that don’t yet exist? Will there be one dominant player? One “killer app”…

A large volume of financial transactions occur in decentralized markets that commonly depend on a network of dealers. Dealers face two impediments to providing liquidity in these markets. First, dealers may face informed traders. Second, they may face costs associated with maintaining large balance sheets, either due to…

The authors use a regulatory sample of trades, masked dealer codes, uncapped and capped trade volumes from the US corporate bond market from 2002-2018, in order to study the intermediation process for large transactions, quantifying the associated risks and costs.

We model the trading strategy of an investor who spoofs the limit order book (LOB) to increase the revenue obtained from selling a position in a security. The strategy employs, in addition to sell limit orders (LOs) and sell market orders (MOs), a large number of spoof buy LOs to manipulate the volume imbalance of the LOB.…

We investigate whether margin calls on derivative counterparties could exceed their available liquid assets and, by preventing immediate payment of the calls, spread such liquidity shortfalls through the market. Using trade repository data on derivative portfolios, we simulate variation margin calls in a stress scenario and…