The Maker-Taker Pricing Model and Its Impact on the Securities Market Structure: A Can of Worms for Securities Fraud?

Dolgopolov, Stanislav

doi:10.2139/ssrn.2399821

Cited by 3 publications

(2 citation statements)

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“…Financialization as a state-of-affairs describes how finance accounts for a larger percentage of economic activity than in previous decades, leading some authors to go from description to causation irrespective of considering the empirical linkages (Casey, 2012). The body of work on 'the insidious power of excessive financialization' (Denning, 2014), for example, is replete with examples of the economic and social problems stemming from financialization, including rising income inequality (Piketty, 2014), banks too big to fail (Brewer and Jagtiani, 2013), perverse financial market designs (Budish et al, 2015) and unfair financial trading practices (Dolgopolov, 2014) to name just a few. In fact, many descriptive accounts of the effects and processes of financialization are treated as causal accounts, although they present arguments that are more correlative.…”

Section: Financialization As a Descriptive Or Causal Variablementioning

confidence: 99%

Financialization and Information Technology: Themes, issues and Critical Debates – part I

Currie

Lagoarde‐Segot

2017

Journal of Information Technology

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Section: Financialization As a Descriptive Or Causal Variablementioning

confidence: 99%

Financialization and Information Technology: Themes, issues and Critical Debates – part I

Currie

Lagoarde‐Segot

2017

Journal of Information Technology

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“…Finally, liquidity-referring to the presence of sufficient market interest to be able to transact large amounts of a given security at reasonable prices in a short time frame-is a fascinating category, especially in the context of HFT, where debates emerge over whether HFTs are 'providing/offering liquidity' or whether they are 'taking liquidity'. 43 An important aspect here is the facility for high-frequency algorithms to post and then quickly retract limit orders as they became unfavourable due to market conditions elsewhere (Dolgopolov, 2014).…”

Section: )mentioning

confidence: 99%

Where do electronic markets come from? Regulation and the transformation of financial exchanges

Castelle

Millo

Beunza

et al. 2016

Economy and Society

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The practices of high-frequency trading (HFT) are dependent on automated financial markets, especially those produced by securities exchanges electronically interconnected with competing exchanges. How did this infrastructural and organizational state of affairs come to be?Employing the conceptual distinction between fixed-role and switch-role markets, we analyse the discourse surrounding the design and eventual approval of the Securities and Exchange Commission's Regulation of Exchanges and Alternative Trading Systems (Reg ATS). We find that the disruption of the exchange industry at the hands of automated markets was produced through an interweaving of both technological and political change. This processual redefinition of the 'exchange', in addition, may provide a suggestive precedent for understanding contemporary regulatory crises generated by other digital marketplace platforms.

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High Frequency Trading and US Stock Market Microstructure: A Study of Interactions betweenComplexities, Risks and Strategies Residing in U.S. Equity Market Microstructure

Abrol¹,

Chesir²,

Mehta³

et al. 2016

Financial Market

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We examine the conditions, complexities and risks of a fragmented market microstructure to contextualize the role of algorithmic and high frequency trading in the US equity markets. The establishment of a national market system and Regulation NMS was meant to promote competition, recognizing the evolution and changing dynamics introduced by technological innovation. This evolution and governing rule set has had many positive effects in terms of competition, fee compression, tighter spread potential and volumes. Our paper identifies certain unintended consequences and complexities of the national market system including fragmentation, sub second quoting and trading, complex order types, data asymmetry, technological innovation, unique strategies and the algorithms that power them. When acting in concert, these complexities give rise to opportunities as well as emerging risks. This high‐speed system can be unstable and susceptible to inherent conflicts of interest, market abuse and price shocks. These shocks can be amplified by positive feedback loops accelerating single stock declines and also posing systemic risks in time scales beyond real‐time physical human comprehension and reaction times. Furthermore they can produce contagion, which we refer to as ‘Flash Splashes’ caused by rapid withdrawals and injections of liquidity in increasingly linked asset classes, indices, sectors and global liquidity pools. High frequency trading strategies can be both passive and aggressive and usually display risk averse and low inventory characteristics. These strategies leverage fragmentation as they create or capture informational asymmetries. They interact directly with sell side algorithms that can hide intentions, hunt liquidity and sweep the order book. These interactions create market dynamics that can benefit and challenge anyone exposed to US equity markets. Every market participant has a risk profile unique to their strategy and objective and while regulations will be enriched or revised and certain unfair practices eliminated great attention should be paid to understanding modern high speed trading risks and both the positive and negative impacts on all stakeholders. We have examined the regulations, complexities and risks to bring clarity and understanding to the current trading ecosystem for its users.

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The Maker-Taker Pricing Model and Its Impact on the Securities Market Structure: A Can of Worms for Securities Fraud?

Cited by 3 publications

References 1 publication

Financialization and Information Technology: Themes, issues and Critical Debates – part I

Financialization and Information Technology: Themes, issues and Critical Debates – part I

Where do electronic markets come from? Regulation and the transformation of financial exchanges

High Frequency Trading and US Stock Market Microstructure: A Study of Interactions betweenComplexities, Risks and Strategies Residing in U.S. Equity Market Microstructure

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