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Automating the Price Discovery Process; Some International Comparisons and Regulatory Implications

  • Ian Domowitz

Automated trade execution systems are examined with respect to the degree to which they automate the price discovery process. Seven levels of automation of price discovery are identified, and 47 systems are classified according to these criteria. Systems operating at various levels of automation are compared with respect to age, geographical location, and type of securities traded. Information provided to market participants, and asymmetries of information between traders with direct access to the automated market and outside investors also are examined. It is found, for example, that the degree of asymmetric information increases with the level of automation of price discovery. The potential for trading abuses related to prearranged trading, noncompetitive execution, and trading ahead of customers is analyzed for each level of automation. Certain levels of automation widen the opportunities for trading abuses in some respects, but may narrow them in others.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 92/80.

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Length: 32
Date of creation: 01 Oct 1992
Date of revision:
Handle: RePEc:imf:imfwpa:92/80
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  1. Ian Domowitz, 1992. "A Taxonomy of Automated Trade Execution Systems," IMF Working Papers 92/76, International Monetary Fund.
  2. Domowitz, Ian & Wang, Jianxin, 1994. "Auctions as algorithms : Computerized trade execution and price discovery," Journal of Economic Dynamics and Control, Elsevier, vol. 18(1), pages 29-60, January.
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