Equity Market Microstructure: Taking Stock of What We Know - The Road from Theory to a Real Marketplace is Indeed Bumpy

Abstract

For over three decades, microstructure literature has grown and trading systems around the world have been reengineered into modern electronic platforms. This paper considers these developments, concentrating on microstructure issues that are germane to equity market architecture, and focusing on the design of one trading facility, Deutsche B¿rse's Xetra. Important insights were gained from the microstructure literature during Xetra's planning period (1994-1997), and Xetra's implementation has marked a huge step forward for Germany's equity markets. Nevertheless, academic research and the design of a real world marketplace remain works in progress.

Keywords: microstructure