Competing on Speed
Two forces have reshaped global securities markets in the last decade: Exchanges operate at much faster speeds and the trading landscape has become more fragmented. In order to analyze the positive and normative implications of these evolutions, we study a framework that captures (i) exchanges’ incentives to invest in faster trading technologies and (ii) investors’ trading and participation decisions. Our model predicts that regulations that protect prices will lead to fragmentation and faster trading speed. Asset prices decrease when there is intermediation competition and are further depressed by price protection. Endogenizing speed can also change the slope of asset demand curves. On normative side, we find that for a given number of exchanges, faster trading is in general socially desirable. Similarly, for a given trading speed, competition among exchange increases participation and welfare. However, when speed is endogenous, competition between exchanges is not necessarily desirable. In particular, speed can be inefficiently high. Our model sheds light on important features of the experience of European and U.S. markets since the implementation of MiFID and Reg. NMS, and provides some guidance for optimal regulations.
|Date of creation:||Jan 2012|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nicholas Economides, 1997.
"The Economics of Networks,"
Brazilian Electronic Journal of Economics,
Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
- Economides, Nicholas, 1996. "The economics of networks," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 673-699, October.
- Nicholas Economides, 1995. "The Economics of Networks," Working Papers 94-24, New York University, Leonard N. Stern School of Business, Department of Economics, revised Sep 1995.
- Nicholas Economides, 1997. "The Economics of Networks," Industrial Organization 9701002, EconWPA.
- Thierry Foucault & Christine A. Parlour, 2004. "Competition for Listings," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 329-355, Summer.
- Thierry Foucault & Christine a Parlour, "undated". "Competition for Listings," GSIA Working Papers 2000-E11, Carnegie Mellon University, Tepper School of Business.
- Foucault, Thierry & Parlour, Christine A, 1999. "Competition for Listings," CEPR Discussion Papers 2222, C.E.P.R. Discussion Papers.
- Thierry Foucault & Christine Parlour, 2011. "Competition for Listings," Working Papers hal-00599911, HAL.
- Thierry Foucault & Christine Parlour, 2004. "Competition for Listings," Post-Print hal-00481211, HAL.
- FOUCAULT, Thierry & PARLOUR, Christine A., 1999. "Competition for Listings," Les Cahiers de Recherche 666, HEC Paris.
- Glosten, Lawrence R, 1994. " Is the Electronic Open Limit Order Book Inevitable?," Journal of Finance, American Finance Association, vol. 49(4), pages 1127-1161, September.
- Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-1483, September. Full references (including those not matched with items on IDEAS)