Showing papers on "Electronic trading published in 2012"

An assessment of features related to phishing websites using an automated technique

Abstract: Corporations that offer online trading can achieve a competitive edge by serving worldwide clients. Nevertheless, online trading faces many obstacles such as the unsecured money orders. Phishing is considered a form of internet crime that is defined as the art of mimicking a website of an honest enterprise aiming to acquire confidential information such as usernames, passwords and social security number. There are some characteristics that distinguish phishing websites from legitimate ones such as long URL, IP address in URL, adding prefix and suffix to domain and request URL, etc. In this paper, we explore important features that are automatically extracted from websites using a new tool instead of relying on an experienced human in the extraction process and then judge on the features importance in deciding website legitimacy. Our research aims to develop a group of features that have been shown to be sound and effective in predicting phishing websites and to extract those features according to new scientific precise rules.

System and method for dynamically regulating order entry in an electronic trading environment

Abstract: A system and method are provided for trading a trading strategy defined for at least one tradeable object in an electronic trading environment. More specifically, one example method includes using a first pay-up tick value to determine a first acceptable price level for an order associated with the trading strategy, automatically modifying the first pay-up tick to a second pay-up tick value in response to detecting a predefined condition, and using the second pay-up tick value to determine a second acceptable price level for the order associated with the trading strategy.

Banking and Trading

Abstract: We study the interaction between relationship banking and short-term, scalable arm's length finance which we call trading. Relationship banking is not scalable, has high franchise value, is long-term oriented and low risk. Trading is transaction-based: scalable, with lower margins (capital constrained), short-term, and more prone to risk shifting. When a bank engages in trading, it can use its franchise value to expand the scale of trading. However there are two inefficiencies. We show that a bank may allocate too much capital to trading ex post, compromising the ability to build relationships ex ante. And a bank may use trading for risk shifting. Financial innovation and the deepening of financial markets have pushed much of arm's length finance into the realm of trading by improving the marketability of assets. While combining relationship banking and trading offers some benefits at a low scale of trading, the unbridled growth of trading opportunities is distortive. The analysis offers insights into bank business models and helps assess recent initiatives aimed at structural reforms in banking.

Speed, Algorithmic Trading, and Market Quality Around Macroeconomic News Announcements

Abstract: This paper documents that speed is crucially important for high frequency trading strategies based on U.S. macroeconomic news releases. Using order level data of the highly liquid S&P500 ETF traded on NASDAQ from January 6, 2009, to December 12, 2011, we find that a delay of 300 milliseconds (1 second) significantly reduces returns by 3.08% (7.33%) compared to instantaneous execution over all announcements in the sample. This reduction is stronger in case of high impact news and on days with high volatility. In addition, we assess the effect of algorithmic trading on market quality around macroeconomic news. Increases in algorithmic trading activity have a positive (mixed) effect on market quality measures when we use algorithmic trading proxies that capture the top of the order book (full order book).

Click or Call? Auction Versus Search in the Over-the-Counter Market

Abstract: Over-the-counter (OTC) markets dominate trading in many asset classes. Will electronic trading displace traditional OTC “voice” trading? Can electronic and voice systems coexist? What types of securities and trades are best suited for electronic trading? We study these issues by focusing on an innovation in electronic trading technology that enables investors to simultaneously search many bond dealers. We show that periodic one-sided electronic auctions are a viable and important source of liquidity even in inactively traded instruments. These mechanisms are a natural compromise between bilateral search in OTC markets and continuous double auctions in electronic limit order books.

A Low-Latency Library in FPGA Hardware for High-Frequency Trading (HFT)

Abstract: Current High-Frequency Trading (HFT) platforms are typically implemented in software on computers with high-performance network adapters. The high and unpredictable latency of these systems has led the trading world to explore alternative "hybrid" architectures with hardware acceleration. In this paper, we survey existing solutions and describe how FPGAs are being used in electronic trading to approach the goal of zero latency. We present an FPGA IP library which implements networking, I/O, memory interfaces and financial protocol parsers. The library provides pre-built infrastructure which accelerates the development and verification of new financial applications. We have developed an example financial application using the IP library on a custom 1U FPGA appliance. The application sustains 10Gb/s Ethernet line rate with a fixed end-to-end latency of 1µs -- up to two orders of magnitude lower than comparable software implementations.

A dysfunctional role of high frequency trading in electronic markets

Abstract: This paper shows that high frequency trading may play a dysfunctional role in financial markets. Contrary to arbitrageurs who make financial markets more efficient by taking advantage of and thereby eliminating mispricings, high frequency traders can create a mispricing that they unknowingly exploit to the disadvantage of ordinary investors. This mispricing is generated by the collective and independent actions of high frequency traders, coordinated via the observation of a common signal.

Are moving average trading rules profitable? Evidence from the European stock markets

Abstract: This article examines the profitability of several simple technical trading rules for 16 European stock markets over the 1990 to 2006 period. Our results indicate that increasing moving average rules indeed have predictive power being able to discern recurring price patterns for profitable trading, even after accounting for the effects of data snooping bias. To assess the profitability of different technical trading rules and strategies, we adopt the White's (2000) Reality Check (RC) test that quantifies the data snooping bias and adjusts for its effects. Our empirical results also support the hypothesis that technical trading rules can outperform the buy and hold strategy after accounting for transaction costs.

Liquidity Cycles and Make/Take Fees in Electronic Markets

Abstract: We develop a model in which the speed of reaction to trading opportunities is endogenous. Traders face a trade-off between the benefit of being first to seize a profit opportunity and the cost of attention required to be first to seize this opportunity. The model provides an explanation for maker/taker pricing, and has implications for the effects of algorithmic trading on liquidity, volume, and welfare. Liquidity suppliers' and liquidity demanders' trading intensities reinforce each other, highlighting a new form of liquidity externalities. Data on durations between trades and quotes could be used to identify these externalities.

Foreign Exchange Market Structure, Players and Evolution

Abstract: Electronic trading has transformed foreign exchange markets over the past decade, and the pace of innovation only accelerates. This formerly opaque market is now fairly transparent and transaction costs are only a fraction of their former level. Entirely new agents have joined the fray, including retail and high-frequency traders, while foreign exchange trading volumes have tripled. Market concentration among dealers has risen reflecting the heavy investments in technology. Undeterred, some new non-bank market participants have begun to make markets, challenging the traditional foreign exchange dealers on their own turf. This paper outlines the players in this market and the structure of their interactions. It also presents new evidence on how that structure has changed over the past two decades. Throughout, it highlights issues relevant to exchange rate modelling.

Foresight: the future of computer trading in financial markets (2012). Final project report.

Abstract: A new two-year Foresight study The Future of Computer Trading in Financial Markets - An International Perspective, sheds new light on technological advances which have transformed market structures in recent years. It assembles and analyses evidence on the effect of HFT on financial markets looking out to 2022.The aim of this project is to make a significant contribution to the challenges computer-based trading brings in the coming years and capitalise on the opportunities it has to offer. The independent and international study has involved 150 leading experts from more 20 countries to provide the best possible analysis on computer trading to date. Sponsored by Her Majesty's Treasury, the project was led by the Government Office for Science under the direction of the Government's Chief Scientific Adviser, Professor Sir John Beddington. It has involved leading experts in the field and explores how computer generated trading in financial markets will evolve over the next 10 years.A High Level Stakeholder Group, comprised of senior individuals from relevant institutions, provided strategic oversight for the project and advised on the key issues to be addressed. It was chaired by the Financial Secretary to the Treasury, Greg Clark MP.

System and method for providing security to a game controller device for electronic trading

Abstract: A system for managing electronic trading, comprises an interface application including a mapping module that defines a plurality of controller signal relationships. Each controller signal relationship associates one or more of a plurality of game controller signals with one of a plurality of trading system commands associated with the electronic trading of financial instruments. The interface application receives a plurality of game controller signals generated by a game controller, and determines, based on the controller signal relationships, that one or more of the plurality of received game controller signals are erroneous. The interface application causes the communication of a command to lock the game controller based on the determination of the one or more erroneous game controller signals.

A stock trading expert system based on the rule-base evidential reasoning using Level 2 Quotes

Abstract: Generally, stock trading expert systems (STES) called also ''mechanical trading systems'' are based on the technical analysis, i.e., on methods for evaluating securities by analyzing statistics generated by the market activity, such as past prices and volumes (number of transactions during a unit of a timeframe). In other words, such STES are based on the Level 1 information. Nevertheless, currently the Level 2 information is available for the most of traders and can be successfully used to develop trading strategies especially for the day trading when a significant amount of transactions are made during one trading session. The Level 2 tools show in-depth information on a particular stock. Traders can see not only the ''best'' bid (buying) and ask (selling) orders, but the whole spectrum of buy and sell orders at different volumes and different prices. In this paper, we propose some new technical analysis indices bases on the Level 2 and Level 1 information which are used to develop a stock trading expert system. For this purpose we adapt a new method for the rule-base evidential reasoning which was presented and used in our recent paper for building the stock trading expert system based the Level 1 information. The advantages of the proposed approach are demonstrated using the developed expert system optimized and tested on the real data from the Warsaw Stock Exchange.

Distributed Electronic Trade Scenarios: Representation, Design, Prototyping

Abstract: This paper introduces the concept of an electronic trade scenario as a potential solution to "open" electronic commerce -- trade among parties that have no prior trading relationship. The basic idea is that these trade scenarios would be stored in a publicly accessible electronic library (perhaps a "global repository" maintained by an independent international organization), and downloaded loaded by trading parties as needed for a particular trade. A representation, called documentary petri nets (DPN) is presented as a possible representation for such trade scenarios. TheInterProcs system is described as a prototyping environment to support the design and execution of such trading systems using this DPN representation. Given our assumption that the parties are trading at "arm's length", a key concern will be the development of trustworthy trade scenarios that have sufficient controls and evidentiary documentation. Various directions of further work are described to improve the quality and flexibility of trade scenario designs.

Peer Energy Cloud -- Civil Marketplace for Trading Renewable Energies

Abstract: An increasing number of private households are becoming producers of renewable energy. From an economic perspective it is beneficial to utilize this energy both locally and promptly. This does require the ability to be able to deal with local excess production at short notice using, for example, an electronic trading platform. The objective of "PeerEnergyCloud" is to research and develop cloud-based technologies for such a trading platform. In this paper we describe an interactive demonstration as it was presented to a wide audience at the CeBIT 2012 fair which took place in Hanover, Germany. The demonstration shows a future energy scenario demonstrating techniques which are necessary as a basis for a civil marketplace for trading renewable energies. We will especially focus on the learning of profiles and based on this the forecast of energy consumption and production. Visitors could indicate individual sensors and available data, switch on and off appliances and hence influence the given user profile and experience the changes on the forecast and in the agent system's behavior. Like the visitors of the CeBIT conference attendees will be able to experience in an interactive demonstration techniques which are necessary as a basis for a civil marketplace for trading renewable energies.

Algorithmic trading and changes in firms equity capital

Abstract: We use a large sample from 2001 to 2009 that incorporates intraday transactions data from 39 exchanges and an average of 12,800 different common stocks to assess the effect of algorithmic trading (AT) on firms’ capital raising activities. Greater AT reduces net equity issues over the next year, but this is only partly driven by AT’s effect on proceeds from new securities issues. Our findings suggest that the main driver of this relationship is AT’s effect on share repurchases.

Trading interface for facilitating trading of multiple tradeable objects in an electronic trading environment

Abstract: A system and method are provided for trading multiple tradeable objects. One example method includes displaying at least one combined quantity indicator representing a combined quantity associated with at least two tradeable objects, detecting an input associated with an order for a predetermined order quantity in relation to one of the combined quantity indicators, and allocating the order quantity between the at least two tradeable objects using at least one quantity allocation rule. In one example embodiment, a plurality of quantity allocation rules can be user-configurable, and different rules can be defined and applied in relation to different order types.

Systems and methods for trading using an embedded spreadsheet engine and user interface

Abstract: Systems and methods for facilitating trading and trading analyses are presented herein. Aspects of the present invention include systems and methods for receiving real-time and historic data, caching and updating the data for access by an embedded spreadsheet engine with a spreadsheet user interface, processing the data using spreadsheet logic and functions, and generating electronic trading message orders. Embodiments of the present invention also support the publishing of and subscribing to data and trading messages. Embodiments of the present invention also support backtesting analyses.

How do individual investors trade

Abstract: This paper examines how high-frequency trading decisions of individual investors are influenced by past price changes. Specifically, we address the question as to whether decisions to open or close a position are different when investors already hold a position compared with when they do not. Based on a unique data set from an electronic foreign exchange trading platform, OANDA FXTrade, we find that investors’ future order flow is (significantly) driven by past price movements and that these predictive patterns last up to several hours. This observation clearly shows that for high-frequency trading, investors rely on previous price movements in making future investment decisions. We provide clear evidence that market and limit orders flows are much more predictable if those orders are submitted to close an existing position than if they are used to open one. We interpret this finding as evidence for the existence of a monitoring effect, which has implications for theoretical market microstructure models and behavioral finance phenomena, such as the endowment effect.

High-Frequency Trading: The Faster, the Better?

Abstract: The floor of the New York Stock Exchange, filled with traders in a frenzy of activity, is perhaps the iconic image of financial markets. But today, the TV pictures we see of the trading floor are largely symbolic. The frenzy of activity instead takes place in server rooms, with human market makers replaced by the algorithms of high-frequency trading firms. They make their money with razor-thin margins and huge volumes. To thrive, they must master both technology and strategy. The debate now rages as to how beneficial they are to markets and how they should be regulated.

News Trading and Speed

Abstract: Speed matters: we show that an investor's optimal trading strategy is significantly different when he observes news faster than others versus when he does not, holding the precision of his signals constant. When the investor has fast access to news, his trades are much more sensitive to news, account for a much bigger fraction of trading volume, and forecast short run price changes. Moreover, in this case, an increase in news informativeness increases liquidity, volume, and the fast investor's share of trading volume. Last, price changes are more correlated with news and trades contribute more to volatility when the investor has fast access to news. (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.)

Too fast too furious: Faster financial-market trading agents can give less efficient markets

Abstract: For many of the world's major financial markets, the proportion of market activity that is due to the actions of "automated trading" software agents is rising: in Europe and the USA, major exchanges are reporting that 30%-75% of all transactions currently involve automated traders. This is a major application area for artificial intelligence and autonomous agents, yet there have been very few controlled laboratory experiments studying the interactions between human and software-agent traders. In this paper we report on results from new human-agent experiments using the OpEx experimental economics system first introduced at ICAART- 2011. Experiments explore the extent to which the performance of the traders, and of the market overall, is dependent on the speed at which the agents operate. Surprisingly, we found that slowing down the agents increased the markets overall ability to settle to a competitive equilibrium, and that slow-agent markets were more efficient.

Trading Strategies in the Overnight Money Market: Correlations and Clustering on the e-MID Trading Platform

Abstract: We analyze the correlations in patterns of trading for members of the Italian interbank trading platform e-MID. The trading strategy of a particular member institution is defined as the sequence of (intra-) daily net trading volumes within a certain semester. Based on this definition, we show that there are significant and persistent bilateral correlations between institutions' trading strategies. In most semesters we find two clusters, with positively (negatively) correlated trading strategies within (between) clusters. We show that the two clusters mostly contain continuous net buyers and net sellers of money, respectively, and that cluster memberships of individual banks are highly persistent. Additionally, we highlight some problems related to our definition of trading strategies. Our findings add further evidence on the fact that preferential lending relationships on the micro-level lead to community structure on the macro-level.

Applying developed‐country regulation in emerging markets: an analysis of Thai insider trading

Abstract: This paper undertakes an out-of-sample test of developed-country insider trading regulation in an emerging market environment (Thailand), where severe information asymmetry, lax enforcement and poor pricing efficiency are endemic. Thai insider trading regulation, which mimics developed market rules, fails on all three measures of success. Insiders trade with impunity during a regulated trading ban. Their trading performance outperforms other investors at all times, and they continue to exploit their privileged position with respect to information flow. Our study suggests it is inappropriate for emerging market regulators to adopt developed market regulation without first considering the unique characteristics of their own environment.

The Effect of Single-Stock Circuit Breakers on the Quality of Fragmented Markets

Abstract: Since the May 6th, 2010 flash crash in the U.S., appropriate measures ensuring safe, fair and reliable markets become more relevant from the perspective of investors and regulators. Circuit breakers in various forms are already implemented for individual markets to ensure price continuity and prevent potential market failure and crash scenarios. However, coordinated inter-market safeguards have hardly been adopted, but are considered essential in a fragmented environment to prevent situations, where main markets halt trading but stock prices continue to decline as traders migrate to satellite markets. The objective of this paper is to empirically study the impact of circuit breakers in a single-market and inter-market setup. We find a decline in market volatility after the trading halt in the home and satellite market which come at the cost of higher spreads. Moreover, the satellite market’s quality and price discovery during CBs is weakened and only recovers as the other market restarts trading.

Out of band credit control

Abstract: Systems and method for mediating risks associated with orders in an electronic trading system are provided. A front end component includes a plurality of trading engines that receive orders from traders. A back-end component includes a match system. The system includes a credit control module, which may be located at the back-end (e.g., clearinghouse), front end, a combination thereof, or other location that communicates with the plurality of trading engines. The credit control may monitor aggregate risk parameters for the trading engines and requests credits from trading engines.

Speed of Convergence to Market Efficiency: The Role of ECNs

Abstract: Chordia, Roll and Subrahmanyam (2005, CRS) estimate the speed of convergence to market efficiency based on short-horizon return predictability of the 150 largest NYSE firms. We extend CRS to a broad panel of NYSE stocks and are the first to examine the relation between electronic communication networks (ECNs) and the corresponding informational efficiency of prices. Overall, we confirm CRS’s result that price adjustments to new information occur on average within five to fifteen minutes for large NYSE stocks. We further show that it takes about twenty minutes longer for smaller firms to incorporate information into prices. Most importantly, we demonstrate that the speed of convergence to market efficiency is significantly related to the type of trading platform where orders are executed, even after controlling for relative order flows, trading costs, volatility, informational effects, trading conditions, market quality, institutional trading activity, and other firm-specific characteristics. Our findings provide direct answers and insights to issues raised in a recent SEC concept release document.

System and method for displaying market information and order placement in an electronic trading environment

Abstract: A system and method are provided for displaying a trading screen and placing an order in an electronic trading environment. The system and method may be used to assist a trader in selecting an item of interest, such as the inside market (best bid and best ask) to be displayed relative to a user configured location on the trading screen, such as the center of the trading screen. In a preferred embodiment, the inside market will stay located relative to center of the trading screen and the price levels associated to the inside market will move as the market conditions fluctuate. Other features and advantages are described herein.