Showing papers on "Electronic trading published in 1995"

Limit Order Trading

Abstract: The paper analyzes the rationale for and profitably of limit order trading. Although limit orders are essential to the functioning of order driven markets, their use has received relatively little attention in the literature. Trading via limit order is, in fact, sub-optimal when transaction prices change solely in response to new information. We suggest that in an order driven market a paucity of limit orders can result in order imbalances causing the transaction price to move temporarily away and then revert to the true price. Such short term changes in transaction price can offset losses incurred by limit order traders because of permanent changes in transaction price due to information. Further, we suggest that the markets can be in ecological balance with liquidity driven price changes being just sufficient for the flow of market and limit orders to equilibrate. We use transaction data for the Dow Jones Industrial stocks for 1988 to compare a limit order strategy with a market order strategy, and find that limit order returns conditional on non-execution are lower. We also test the profitability of placing a network of buy and sell limit orders, and document the existence of a limit order spread that is appreciably greater than the posted bid-ask spread. Our findings suggest that trading via limit orders is desirable for participants who are willing to risk non-execution, and that trading via market orders is desirable for participants who are not willing to take the risk.

Networks of collaboration or conflict? Electronic data interchange and power in the supply chain

Abstract: This paper is concerned with the way in which the design and use of interorganizational information systems reflect the strategic interests of powerful corporate players and the struggles of those players for domination in the marketplace. The paper draws upon the insights developed within the sociology of technology, in which innovation is not simply a technical-rational process of ‘solving problems’; it also involves economic and political processes in articulating interests, building alliances and struggling over outcomes. To illustrate the way in which powerful users seek to have their interests articulated in information systems, the paper discusses the design and implementation of electronic data interchange in a major UK motor manufacturer, highlighting the economic, political and cultural factors which have conditioned the design and use of this system. It then sets these findings in the context of the automotive industry more broadly, and compares them with experiences in another sector, retailing. The paper concludes that the design and use of electronic trading networks are more strongly shaped by the competitive environment than by contemporary ‘popular’ management ideas.

Electronic trading card

Abstract: A system for the application of a trading card metaphor to a disassociated computer program and the unique design of several hardware and software systems supports and enhances collecting, trading, game playing, and creating of digital electronic trading cards by taking the traditional trading card metaphor and uniquely updating and enhancing it for application in consumer digital media. An electronic hardware and software architecture for electronic trading cards (ETCs) has a number of components that function together as a system that support making electronic trading cards, trading electronic trading cards, activities (such as game playing) with electronic trading cards, and collecting electronic trading cards. The ETC format is embodied in the components of the electronic trading card system, which are designed to generate and accept a common proprietary electronic trading card format, so that, for example, a card created in a card-making application can be recognized by an electronic trading card album. The card format supports both scarcity and authenticity, which are essential to card collecting and trading, within a disassociated computer code segment.

Cooperative supply chain management: the impact of interorganizational information systems

Abstract: The impact of interorganizational information systems on the structure and management of a supply chain in the textile industry is analysed from a managerial perspective. Case data from detailed, partial longitudinal studies of manufacturer and retail organizations are presented. The competitive strategies of organizations in the supply chain are described and their associated patterns of communication are analysed. It is shown that companies are moving towards cooperative relationships in an effort to make the supply chain as a whole more competitive. The resulting market structure is an electronic hierarchy in which business processes are integrated across organizational boundaries using interorganizational information systems. The strategies of the individual firms are evolving as new opportunities arise and different problems present themselves. The results are compared with current theories on market structure and competition in an electronic trading environment and future trends are outlined.

Electronic Call Market Trading

Abstract: Since Toronto became the first stock exchange to computerize its execution system in 1977, electronic trading has been instituted in Tokyo (1982), Paris (1986), Australia (1990), Germany (1991), Israel (1991), Mexico (1993), Switzerland (1995), and elsewhere around the globe. Quite likely, by the year 2000, floor trading will be totally eliminated in Europe, predominantly in favor of electronic continuous markets.

Computerized stock exchange trading system

Abstract: An improvement in computer automated stock exchange trading whereby a graphic user interface with a mouse and display is used to select parameters such as share symbol, price selection, order size, and transaction type, as well as other indicators to launch a trading order to the order entry system of a stock exchange computer. Further improvements include a programmed interface by which data on a group of shares may be read from a spreadsheet formulated into an order and launched automatically or in response to a signal from an operator so as to trade an index or basket of shares substantially instantaneously.

Differential Information and Dynamic Behavior of Stock Trading Volume

Abstract: This paper develops a multi-period rational expectations model of stock trading in which investors have differential information concerning the underlying value of the stock. Investors trade competitively in the stock market based on their private information and the information revealed by the market-clearing prices, as well as other public news. We examine how trading volume is related to the information flow in the market and how investors' trading reveals their private information.

Investment and Insider Trading

Abstract: Within a dynamic environment, this paper introduces an inside trader to an economy where rational, but uninformed, traders choose between investment projects with different levels of insider trading. When inside information has little value in future investment decisions, insider trading distorts investment towards assets with less private information, imposing net welfare costs on the economy. When an insider's private information is valuable in making future investment decisions, the net social benefit of inside trading can be positive; the resulting increases in investment efficiency due to more informative prices is enough to compensate for the distortion induced by the inside trader. When insiders receive private information more than once, insiders may trade to reveal their private information at the beginning of their relationship with the firm. This has two effects; i) more information is revealed in equilibrium and ii) there is less chance than an uninformed agent will have to trade with the insider. Both these effects reduce the investment inefficiencies associated with insider trading. As a consequence, uninformed liquidity traders prefer to trade in a market with a long-term insider. This improvement in investment efficiency, leads to a Pareto improvement - both the uninformed traders and the insider are made better off if the insider receives information more than once.

Electronic trading system featuring arbitrage and third-party credit opportunities

Abstract: An electronic trading system includes a plurality of trader terminals for receiving credit parameter data, arbitrage parameter data, and trading data from a trading entity and displaying trade information to the trading entity. The trading data includes bid and/or offer information input by the trading entity. The system further includes a computer connected to the plurality of trader terminals via a communications network which receives and stores the credit parameter data and the trading data from the plurality of trader terminals. The system also includes a detector circuit or program for automatically detecting an available arbitrage opportunity including a plurality of trades based on the credit parameter data, the arbitrage parameter data, and the trading data; and a circuit or program for automatically executing the available arbitrage opportunity by executing all of the plurality of trades. A similar electronic trading system includes an automatic name switch feature wherein the plurality of trader terminals receive name switch parameter data, credit parameter data, and trading data from the trading entity. A circuit or program automatically detects and executes available name switch transactions based on the credit parameter data, the name switch parameter data, and the trading data.

Trading Costs and the Trading Systems for Nasdaq Stocks

Abstract: The impact of institutional- and individual-investor-oriented trading systems on the liquidity and volatility of Nasdaq stocks has been the subject of much controversy. Bid–ask spreads for the most actively traded Nasdaq stocks have increased sharply during the past decade. The widening of spreads is statistically explained by increases in institutional ownership and trading. In contrast, the evidence does not show that individual-oriented trading systems have been associated with adverse effects on liquidity, even though such effects have been alleged.

Electronic interface for exchange of trouble administration information in telecommunications

Abstract: Telecommunications electronic interface exchanges trouble administration information between a long distance carrier and a Telco site. The interface provides fast and cost-effective electronic transmission of problem information with little or no changes to the current operating procedures, eliminating the need for manually calling each other's personnel to enter the information needed to open a ticket on their respective trouble management systems. This electronic exchange of information will insure the timely and accurate distribution of problem information to all concerned parties. This interchange of information occurs via an industry standardized transportation and data format. Standards compliance allows easy implementation of the electronic interface with all companies which are likewise compliant.

Electronic Trading Systems: Strategic Implications of Market Design Choices

Abstract: Modern financial markets compete aggressively for trading activity and investor interest.Information technology, once a crucial element in streamlining paper flows andoperations, is now a strategic resource used in attracting or retaining market liquidity.Established exchanges introduce technology to enhance their markets. New marketvenues challenge the status quo and rely on technology to offer diverse services toincreasingly sophisticated investors. In this paper, we examine the strategic designdecisions embedded in these new electronic trading systems. Design decisions arecritical, as they determine the market microstructure which influences investingstrategies, patterns of trade, liquidity and volatility. We propose a taxonomy of designalternatives based on six major dimensions: market structure, type of orders, orderexecution priority rules, price discovery rules, time stamping, and transparency. Usingexamples of existing systems, we discuss the potential impact of the various alternativeson the eventual attractiveness of the market to the investors.

Trading Blocs and the Trading System: The Services Dimension

Abstract: This paper explores the relationship between regional and multilateral agree ments to liberalize trade in services. Following a conceptual discussion of the polit ical economy of regional as opposed to multilateral negotiations, existing data on trade and investment flows are analyzed with a view to gaining some insight into the likely interest group preferences regarding alternative institutional arrange ments to liberalize trade in services. Conceptual considerations and available data suggest a preference for regional liberalization. But available data and a comparison of the content of the major existing agreements also suggests that regional and multilateral approaches are more likely to be considered by service industries and regulators to be complements than substitutes. (JELF13)

Information Technology, Competition and Market Transformations: Re-engineering the Dutch Flower Auctions

Abstract: The Dutch flower auctions have played a critical role in the world cut-flower industry by providing efficient centers for price determination and transactions of flowers between buyers and sellers. These auctions owned by Dutch cut-flower grower cooperatives have traditionally used the A¢Â€ÂœDutch auctionA¢Â€Â as the mechanism for price determination. This paper considers how changing patters of international competition, buyer preferences and information technology are likely to effect the organization of the Dutch flower auction. We provide a framework for analyzing the merits of different transaction models and use this framework to evaluate the strengths and weaknesses of existing and proposed electronic auction models for trading flowers. We propose information technology will enable new forms of trading that will partly replace and supplement the traditional Dutch auction as a method of organizing price determination and transactions. We identify how electronic trading will differ from prior mechanisms, and consider key challenges to the implementation of new auction models. Specifically we illustrate how the current auctions have been structured to serve the interests of growers, while electronic markets will primarily benefit buyers. Thus we highlight the importance of altering incentive and ownership structures in the Dutch flower industry to effectively transition to new electronic markets. This case illustrates the various complex issues that arise in the design and implementation of electronic markets, in settings characterized by changing technologies, pre-existing organizational processes and power structures.

Using Information from Tradinig in Trading and Portfolio Management

Abstract: As electronic trading systems become more prevalent, perceptions of “best execution” adjust accordingly. This presentation examines the relationships between transaction costs and (1) trade size relative to market capitalization, (2) trade size relative to average trading volume, (3) management style, (4) patience in trading, and (5) use of crossing networks.This presentation comes from the Execution Techniques, True Trading Costs, and the Microstructure of Markets conference held in Toronto, Ontario, Canada, on December 3-4, 1992.

Anonymous electronic trading versus floor trading

Abstract: This paper compares the attractiveness of floor trading and anonymous electronic trading systems. It is argued that in times of low information intensity the insight into the order book of the electronic trading system provides more valuable information than floor trading, but in times of high information intensity the reverse is true. Thus, the electronic system's market share in trading activity should decline in times of high information intensity. This hypothesis is tested by data on BUND-Future trading. This future is traded on the German and on the British futures exchange. The empirical results support the hypothesis.

Bypass trading and market quality in electronic securities exchanges

Abstract: Electronic financial markets use information technology to disseminate prices, quantities, and buyer and supplier identities. Increased visibility and market transparency have recognized benefits, but may introduce imperfections, and create profitable opportunities to “bypass”; established exchanges. In the U.S., dissemination of real‐time securities market information has equipped several firms to develop competing, off‐exchange trading mechanisms that rely on central market price data, but whose transactions bypass the established market. Significant trading away from the principal market may reduce market quality and increase transactions costs. A simulation model of trading in a continuous auction market (similar to the market structure of the New York Stock Exchange) is used to examine the effects of increasing levels of trading activity through an off‐exchange dealer. The results indicate competition from an alternative trading venue has mixed effects on the trading costs borne by investors—raising ...

Impact of electronic data interchange in the Australian automotive industry

Abstract: Information technology continues to play an increasingly significant role in the development of firms competing in the vast array of markets from those classified as global markets, such as the automotive industry, to the smaller nationally-based markets such as retailing. An objective of electronic commerce is to assist organisations to remain competitive and gain entry to markets which were previously unattainable. This study focuses on the organisational impact of one form of electronic commerce (electronic data interchange) on the component sector of the Australian automotive industry and examines the extent to which trading partner relationships have been affected. The research investigates the extent to which the integration of electronic data interchange (EDI) with an organisation’s internal application system may facilitate specific net benefits. The automotive industry became the first Australian industry to cooperatively adopt EDI. Research to date has not adequately examined the organisational impact of the nature and extent of net benefits gained from EDI adoption. To achieve the objective of assessing EDI net benefits, a conceptual model was developed. The model proposed that the level of EDI net benefits expected is influenced by the size of the organisation and the concentration of trade achieved within the industry via intervening links through (a) the level of senior management commitment and (b) the extent of system integration. Nine empirically testable research propositions are derived from the model, each testing the relationship between model constructs. Data was collected from 114 component suppliers to Ford Australia in 1992 and 1994 using a repeated cross-sectional longitudinal design. Structural equation modelling using partial least squares was adopted in the analysis of the data. A pure longitudinal model together with 12 case studies of selected component manufacturers supplemented the research design. The results of the research showed that the proposed conceptual model is a good description of the data. In particular, net benefits obtained from EDI adoption are directly determined by the size of the organisation, and the extent to which firms integrate EDI into their internal application systems. The level of net benefits is only indirectly influenced by the level of senior management commitment to the EDI project through (a) management commitment’s direct effect on integration, and (b) the direct effect the volume of trade a supplier achieves with the automotive industry on senior management commitment and system integration. The major benefits organisations experienced from EDI were enhanced productivity, clerical staff savings, improved data accuracy, enhanced customer service and reduced administration costs. The research showed that few suppliers gained inventory savings from EDI, a frequently claimed benefit from EDI adoption. Evidence of small improvements in product quality emerged from the results. In summary, this research attempts to make two primary contributions to knowledge, first in providing a method by which net benefits from electronic commerce can be measured within an industry adopting electronic trading, and second, by providing organisations with the knowledge of the specific net benefits organisations could expect from EDI adoption, together with the four major factors affecting these benefits. The research concludes with possible directions for future research, in particular an assessment of the impact of incorporating financial EDI into electronic trading.

Equity Trading Practices and Market Structure: Assessing Asset Managers' Demand for Immediacy

Abstract: This paper summarizes the responses to a questionnaire sent to equity traders through TraderForum of the Institutional Investor. The respondents manage in total a very significant percentage of equity assets under management in the United States. The focus of the questions was the extent of the demand for immediate execution of orders. We found that the majority of traders are willing to trade patiently if this reduces execution costs. Many traders indicate that they frequently delay trades to obtain better prices. Most respondents indicate that they are typically given more than a day to implement a large order, that they typically break up more than 20% of their large orders for execution over time, and that they regularly take more than a day for a large order that has been broken into lots to be executed completely. There is a generally positive view of alternative electronic trading systems, such as Instinet and Investment Technology Group's POSIT. The key motives for trading on these systems are reduced market impact, lower spreads, better liquidity, and anonymity. The respondents indicate that the key changes that would make alternative electronic systems more attractive are an increase in execution rates and more convenient times of trading. The responses to the survey also show that alternative electronic systems would be used more if the traders did not have soft dollar arrangements.

The Scienter Requirement and Wash Trading in Commodity Futures: The Knowledge Lost in Knowing

Abstract: The commodity futures markets perform a number of essential functions in the financial sector. These markets provide risk intermediation services and in the process of doing so, generate information concerning supply, demand, and future price of the commodities traded on these markets. This information is used by market participants to hedge the risk of adverse price movements and to speculate on hoped for, or anticipated changes in price. In addition to pricing information, these markets also provide technical data used by speculators and commercial traders, including volume, and open interest. However, the information produced by these markets can only be viewed as accurate and reliable when it results from trades being executed in a competitive manner on the exchanges. If the trades are not executed in a competitive manner because the trading process has been corrupted by noncompetitive trading, then the information produced that will guide the conduct of market participants is inaccurate and unreliable and when used by market participants it results in misguided allocations of assets and resources at a cost to society generally. This paper looks at one form of noncompetitive market activity, wash trades: the simultaneous buying and selling of futures contracts in a way that gives the appearance of being a purchase and sale but which avoids any actual change in ownership. Wash trading permits traders to realize illegal profit and is inimical to the pricing and risk-shifting functions of the futures markets because it results in the dissemination of price information that is incorrect. Although wash trading is illegal, the mens rea requirement, knowledge, limits the success of enforcement actions against wash traders. This article argues that the scienter requirement as articulated by the Commodity Futures Trading Commission (CFTC) has evolved into a formulation that protects questionable trading activities at the expense of market integrity. Instead, the CFTC should determine the quantitative impact of noncompetitive trading on the markets and use that information to determine whether the risks created by wash trading are best addressed by instituting a market maker function or by utilizing a scienter analysis that will protect the integrity of these markets.

Trade execution costs and disintermediated order crossing systems on the London Stock Exchange

Abstract: The growth of alternative trading systems that compete with established stock markets will have profound effects on many securities exchanges and their member firms. New screen-based markets match investors' orders directly without the involvement of a broker or a dealer, saving intermediation costs such as the bid-ask spread and broker commission costs. Competing market makers operating on the London Stock Exchange's SEAQ market provide an intermediated "quote-driven" trading mechanism, but the approaching roll-out of several alternatives will provide investors with new opportunities to trade without market makers. A model of order arrival, information change, and trading in a competing dealer market based on SEAQ is used to examine the consequences of "disintermediated" trading systems. The results indicate low-cost trading systems reduce dealing margins and the role of intermediaries. While alternative trading system lessen the transactions costs borne by some traders, those requiring immediate execution and dealer intermediation may pay more in future marketplaces. >

Interactive EDI-IT and commerce in the 21st century

Abstract: It has taken 20 years for EDI to begin to become an accepted way of doing business. Change will not remain at this leisurely pace-the forces identified in the paper will lead to a explosive growth in the number of users, use and new technology. I-EDI will be a very significant factor in the development of information technology but not the only one. It is however, the natural successor to batch EDI and will provide a natural transition path to real-time, interactive trading. The first users of i-EDI will be companies who are already using a form of interactive trading but, once its use has been proved, it will rapidly be picked up by companies who previously had not even realised that EDI could solve particular business problems.

Capital Markets Trading Floors, Current Practice

Abstract: Financial trading has been described as technological warfare Whether or not you believe the metaphor, trading systems certainly involve a tremendous need for highly reliable, interruption free, real-time data Real-time, in this case, means presented accurately and without delay Current practice of medium to large trading floors often involves Unix based workstations and significant attention to reliability There are issues to be addressed during the construction of the physical facility, the planning and installation of the systems, and various rules of the road for support personnel This paper attempts to address many of these areas In this paper some of today's common practices and the rationale behind them will be described It is the goal to take some of the mystery of out the black art of trading floor design and support The ideas in this paper have been installed on several of the largest trading floors in Boston, MA (USA) covering the market segments of Foreign Exchange (F/X), derivatives, equities, fixed income, and (US) government securities The only market segment not represented is commodities

Insider Trading and regulation: A look at bank holding companies

Abstract: With the passage of the Insider Trading Sanctions Act (ITSA) of 1984, regulators have attempted to reduce insider trading activities through their increased power to impose stiffer penalties on violators. In their study of trading activity associated with tender offers, Arshadi and Eyssell (1991) find that insiders went from being heavy net purchasers of their own firms' stock prior to tender offer announcements to being weak net sellers. The special status of bank holding companies suggests that the trading patterns of insiders would differ between bank holding companies and non-bank holding companies. The results in this paper indicate this to be the case as there is no change in the trading patterns for insiders of bank holding companies between the two regulatory periods.

Electronic markets and floor markets: competition for trading volumes in futures and options exchanges

Abstract: The internationalization of financial markets and the increasing demand for risk management products have fueled the growth of derivatives markets While most exchanges have experienced increasing volumes over recent years, the pace of growth varies widely across exchanges, and the established marketplaces face increasing competitive pressures In this paper, we investigate whether the trading mechanism offered to derivatives investors influences growth in market volumes In particular,we distinguish between manual open outcry and electronic trading In a floor market, traders gather in a pit and announce their orders They complete trades using acombination of hand signals and eye contact In an electronic market, orders a resubmitted to a central order book, and trades are created according to a matching algorithm Using volume data from 1990-1994 for futures and options exchanges worldwide, we compute growth rates for the largest contracts and find that contracts traded in screen-based exchanges have experienced faster growth than those traded inmanual markets We discuss several interpretations of the data, but conclude that electronic exchanges are developing a competitive advantage