The Electronic Call Auction: Market Mechanism and Trading

ROBERT A. SCHWARTZ The primary objective of this book is to consider how the inclusion of electronic call auction trading would affect the performance of our U.S. equity markets. The papers it contains focus on the call auction and its role in a hybrid market struc ture. The purpose is to increase understanding of this trading environment, and to consider the design of a more efficient stock market. This book had its origin in a symposium, Electronic Call Market Trading, that was held at New York University's Salomon Center on April 20, 1995. Nearly 150 people from 16 different countries attended. At the time, three proprietary trading systems based on call auction principles (The Arizona Stock Exchange, Posit, and Instinet's Crossing Network) had been operating for several years and interest already existed in the procedure. Since the symposium, increasing use has been made of call auctions, primarily by the ParisBourse in its Nouveau Marchi: and CAC markets, by Deutsche Borse in its Xetra market, and in the U.S. by OptiMark. Rather than being used as stand alone systems, however, call auctions are now being interfaced with continuous markets so as to produce hybrid market structures, a development that is given considerable attention to in a number of the chapters in this book.

Autorentext
Robert A. Schwartz is Marvin M. Speiser Professor of Finance and University Distinguished Professor in the Zicklin School of Business, Baruch College, CUNY. Before joining the Baruch faculty in 1997, he was Professor of Finance and Economics and Yamaichi Faculty Fellow at New York University's Leonard N. Stern School of Business, where he had been a member of the faculty since 1965. Professor Schwartz received his PhD in economics from Columbia University. He has published over fifty journal articles and fifteen books. He has served as a consultant to various market centers including the New York Stock Exchange, the American Stock Exchange, NASDAQ, and Deutsche Börse, and has been an associate editor for several finance journals. In 1995, Professor Schwartz was named the first chairman of NASDAQ's Economic Advisory Board, where he served until the spring of 1999.

Klappentext

This book considers how the inclusion of electronic call auction trading would affect the performance of our U.S. equity markets. The papers it contains focus on the call auction and its role in a hybrid market structure. The purpose is to increase understanding of this trading environment, and to consider the design of a more efficient stock market. A call auction is a form of trading that died out in the pre-computer age but is making its reentrance today as an electronic marketplace. Batching orders for simultaneous execution at a single moment in time at a single price is the essence of call auction trading. Because its determination is based on the full set of orders, the clearing price in a call auction can be thought of as a `consensus value.' This contrasts with a continuous market where a transaction is made any time a buy and sell order meet in price, and where price generally fluctuates as the orders meet. Recent advances in computer technology have considerably expanded the call auction's functionality. We suggest that the problems we are facing concerning liquidity, volatility, fragmentation and price discovery are largely endemic to the continuous market, and that the introduction of electronic call auction trading in the U.S. would be the most important innovation in market structure that could be made. This book had its origin in a symposium, Electronic Call Market Trading, that was held at New York University's Salomon Center on April 20, 1995. At the time, three proprietary trading systems based on call auction principles (The Arizona Stock Exchange, Posit, and Instinet's Crossing Network) had been operating for several years and interest already existed in the procedure. Since the symposium, increasing use has been made of call auctions, primarily by the ParisBourse in its Nouveau Marchi and CAC markets, by Deutsche Börse in its Xetra market, and for fixed income in the U.S. by State Street's BondConnect. Rather than being used as stand alone systems, however, call auctions are now being interfaced with continuous markets so as to produce hybrid market structures, a development to which considerable attention is given in a number of the chapters in this book. The book is divided into three parts.

• The first, Call Auction Trading, gives an overview of this trading environment.
• The second, Investor Trading Practices and the Demand for Immediacy, contains the findings of four institutional trader surveys.

• The third, Market Structure: The Broader Picture, presents a more inclusive view of the development of market structure.

  Inhalt
  I. Call Auction Trading.- 1 The Call Auction Alternative.- 2 The Call Market: Historical Artifact or Market Architecture of the Future.- 3 Call Market Trading: History, Economics, and Regulation.- 4 An Electronic Call Market: Its Design and Desirability.- 5 Electronic Call Market Trading.- 6 The Option Properties of Limit Orders in Call and Continuous Environments.- 7 Considering Execution Performance in Electronic Call Market Design.- 8 Call Market Mechanism on The Paris Stock Exchange.- 9 Call Market Mechanism on Deutsche Börse.- 10 Call Market Mechanism on the Tel Aviv Stock Exchange.- 11 Who Should Trade in a Call Market?.- II. Investor Trading Practices and the Demand for Immediacy.- 12 Equity Trading Practices and Market Structure: Assessing Asset Managers' Demand for Immediacy.- 13 Institutional Investor Trading Practices and Preferences.- 14 French Institutional Investors: Investment Process, Trading Practices and Expectations.- 15 The Demand for Immediacy on the Australian Stock Exchange (ASX).- III. Market Structure: The Broader Picture.- 16 Technology Curves, Innovation and Financial Markets.- 17 Market Integration: What's the Optimum Level? Serving the Needs of Institutional and Retail Investors.- 18 An Analogue Trader Views the Digital Market and Beyond.- 19 What's Driving Market Structure? Technology or Regulation?.- 20 Financial Markets in the New Millennium: Will the Inmates Run the Asylum?.- 21 How Best to Supply Liquidity to a Securities Market.- 22 The OptiMark Experience: What Welearned.- 23 Dealer Markets, Derivative Expirations and a Call.- 24 Open Sesame: Alternative Opening Algorithms in Securities Markets.- 25 Call Market Trading in Germany A Pre-Xetra Analysis.- 26 Noise in the Price Discovery Process: A Comparison of Periodic andContinuous Auctions.- 27 The Effects of Automation on Market Efficiency in Auction and Specialist Markets.- 28 Technology's Impact on the Equity Markets.