Title | ||
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Alternative Securities Trading Systems: Tests and Regulatory Implications of the Adoption of Technology |
Abstract | ||
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<P>Reasons for the mixed reactions to today's electronic off-exchange trading systems are examined, and regulatory implications are explored. Information technology IT could provide more automated markets, which have lower costs. Yet for an electronic trading system to form a liquid and widely used market, a sufficient number of traders would need to make a transition away from established trading venues and to this alternative way of trading. This transition may not actually occur for a variety of reasons. Two tests are performed of the feasibility and the desirability of transitions to new markets. In the first test, traders in a series of economic experiments demonstrate an ability to make a transition and develop a critical mass of trading activity in a newly opened market. In the second test, simulation is used to compare the floor-based specialist auction in place in most U.S. stock exchanges today to a disintermediated alternative employing screen-based order matching. The results indicate that reducing the role of dealer-intermediaries can actually diminish important measures of market quality. Our findings suggest that the low trading volumes on many off-exchange systems do not result from traders' inability to break away from established trading floors. Rather, today's off-exchange trading systems are not uniformly superior to the trading mechanisms of traditional exchanges. Thus, regulatory actions favoring off-exchange trading systems are not warranted; but, improved designs for IT-based trading mechanisms are needed, and when these are available, they are likely to win significant trading volume from established exchanges.</P> |
Year | DOI | Venue |
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1996 | 10.1287/isre.7.2.163 | Information Systems Research |
Keywords | DocType | Volume |
experimental economics | Journal | 7 |
Issue | ISSN | Citations |
2 | 1047-7047 | 28 |
PageRank | References | Authors |
10.07 | 1 | 2 |
Name | Order | Citations | PageRank |
---|---|---|---|
Eric K. Clemons | 1 | 2430 | 633.72 |
Bruce W. Weber | 2 | 322 | 59.62 |