Applying Pricing Engineering for Electronic Financial Markets
e-Finance Lab Discussion Paper No. 1/2007
Posted: 19 May 2008
Due to the demutualisation of exchanges, the business case of operating an electronic financial market has become even more important. Specifically, it is vital to design pricing incentives for the provision of order flow and thereby to assure market liquidity. The paper will introduce the concept of pricing engineering for electronic financial markets. Based on an analysis of environmental factors and the objectives of the market operator, a focus will be laid on the implementation of fee structures that include liquidity incentives. The concepts were implemented in the context of a new electronic market, the Dubai International Financial Exchange (DIFX). The project will be described as a case study for the practical realisation of the pricing engineering approach.
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