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|Title: ||ELECTRONIC TRADING SYSTEMS: STRATEGIC IMPLICATIONS OF MARKET DESIGN CHOICES|
|Authors: ||Levecq, Hugues|
Weber, Bruce W.
|Issue Date: ||3-Mar-1995|
|Publisher: ||Stern School of Business, New York University|
|Series/Report no.: ||IS-95-19|
|Abstract: ||Modern financial markets compete aggressively for trading activity and investor interest.
Information technology, once a crucial element in streamlining paper flows and
operations, is now a strategic resource used in attracting or retaining market liquidity.
Established exchanges introduce technology to enhance their markets. New market
venues challenge the status quo and rely on technology to offer diverse services to
increasingly sophisticated investors. In this paper, we examine the strategic design
decisions embedded in these new electronic trading systems. Design decisions are
critical, as they determine the market microstructure which influences investing
strategies, patterns of trade, liquidity and volatility. We propose a taxonomy of design
alternatives based on six major dimensions: market structure, type of orders, order
execution priority rules, price discovery rules, time stamping, and transparency. Using
examples of existing systems, we discuss the potential impact of the various alternatives
on the eventual attractiveness of the market to the investors.|
|Appears in Collections:||IOMS: Information Systems Working Papers|
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