Execution and Exchanges - Articles & White Papers

How can DeFi investors execute large orders? Marcello Monga, Dphil Student at the Oxford-Man Institute of Quantitative Finance shares his research findings.

The intent of this report is to break down the complexity of and analyze data for U.S. equity market structure. Before we can deep dive into the data, we must set the foundation to analyze market structure. This note does just that, explaining terminology, market participants, and the structure of markets.

The report, “The Impact of Distributed Ledger Technology in Global Capital Markets” evaluates the opportunities and risks of DLT and DLT-based securities and assesses the applicability of existing legal, regulatory, and risk management frameworks. To illustrate the potential of DLT in capital markets, the report examines…

We study the relationship between volatility and liquidity in the market for on-the-run Treasury securities using a novel framework for quantifying price impact. We show that at times of relatively low volatility, marginal trades that go with the flow of existing trades tend to have a smaller price impact than trades that go…

This joint research experiment examined a cross-border multi-currency use case in which vehicle currencies are used as a bridge to exchange currency pairs which are not widely traded. It explored the ability of distributed ledger technology (DLT) to establish connectivity across heterogeneous simulated currency ledgers,…

Measuring the responsiveness of a market risk model is relevant whenever the focus is on evaluating if a model is over- or under-reacting to changes in market conditions. Such is the case, for example, in the discussion about procyclical effects of the initial margin models used both in the centrally cleared and non-…

Four banks have exited the European Union’s primary dealership group since last September, signalling that smaller-sized banks are struggling to keep up with the costs and obligations in maintaining their roles as market makers for the EU.

This OFR brief has found for Treasury repurchase agreements in the noncentrally cleared bilateral repo market, 74% of all volume is transacted at a zero haircut, a material departure from tri-party repo, where the median haircut on Treasury collateral has held consistently at 2% for over a decade.

The emergence of cryptocurrencies/crypto assets has allowed the provision of a new form of financial services, including payments and loans, known as decentralised finance (DeFi). Crypto assets currently represent only about 1 percent of total global financial assets and it is unlikely, in its current form, that DeFi will…

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…

Recent market conditions have highlighted the pivotal role of repo in financing the real economy, and the need for repo market participants to widen their access to additional, deeper liquidity pools with a broad, active participant base. In our latest white paper, we examine the current state of the repo market, the…

Motivated by the March 2020 ‘dash for cash’, we build a model in which a potential liquidity shock to bond funds can prompt a self-fulfilling fire sale in the presence of a dealer with limited trading capacity. Following the global games literature, we derive the probability of a self-fulfilling fire sale. Introducing a…

Settlement fails are instances in which one counterparty of a trade fails to deliver or receive securities on the settlement date of the transaction. In 2022, settlement fails in corporate securities reached levels not seen since the 2007-09 financial crisis. The authors investigate the 2022 spike in settlement fails for…

This Quarterly Report includes international capital market practice and regulatory updates on the primary markets, secondary markets, repo and collateral markets, Sustainable Finance, FinTech and Digitalisation and Asian market developments.

The Securities and Exchange Commission utilizes an algorithm developed by Boehmer et al. (2021) that is known to have both type I errors (i.e., falsely identify institutional trades as retail) and type II errors (i.e., identify only a subset of actual retail trades) to classify trades that the NYSE’s publicly available TAQ…

We characterise the liquidity provision and price discovery roles of dealers and HFTs in the FX spot market during the sample period between 2012 and 2015.

We propose a new market design for trading financial assets. The design allows traders to directly trade any user-defined linear combination of assets. Orders for such portfolios are expressed as downward-sloping piecewise-linear demand curves with quantities as flows (shares/second). Batch auctions clear all asset markets…

Motivated by cognitive theories verifying that investors have limited capacity to process information, we study the effects of information overload on stock market dynamics. We construct an information overload index using textual analysis tools on daily data from The New York Times since 1885. We structure our empirical…

Four distinct clusters of client order flow are identified and their properties analyzed.

Since 2014, asset purchases and targeted longer-term refinancing operations (TLTROs) have been the two main planks of quantitative easing (QE) in the Eurozone. The ECB’s asset purchases led to a significant compression of term spreads, easing financing conditions in the effort to lift inflation to the price stability target…