Electronic Trading Systems: Strategic Implications of Market Design Choices

30 Pages Posted: 15 Oct 2008

See all articles by Hugues Levecq

Hugues Levecq

Hong Kong University of Science & Technology (HKUST) - Department of Information & Systems Management

Bruce W. Weber

City University of New York (CUNY) - Baruch College

Date Written: March 1995

Abstract

Modern financial markets compete aggressively for trading activity and investor interest.Information technology, once a crucial element in streamlining paper flows andoperations, is now a strategic resource used in attracting or retaining market liquidity.Established exchanges introduce technology to enhance their markets. New marketvenues challenge the status quo and rely on technology to offer diverse services toincreasingly sophisticated investors. In this paper, we examine the strategic designdecisions embedded in these new electronic trading systems. Design decisions arecritical, as they determine the market microstructure which influences investingstrategies, patterns of trade, liquidity and volatility. We propose a taxonomy of designalternatives based on six major dimensions: market structure, type of orders, orderexecution priority rules, price discovery rules, time stamping, and transparency. Usingexamples of existing systems, we discuss the potential impact of the various alternativeson the eventual attractiveness of the market to the investors.

Suggested Citation

Levecq, Hugues and Weber, Bruce W., Electronic Trading Systems: Strategic Implications of Market Design Choices (March 1995). NYU Working Paper No. 2451/14226, Available at SSRN: https://ssrn.com/abstract=1284843

Hugues Levecq (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Information & Systems Management

Clear Water Bay, Kowloon
Hong Kong

Bruce W. Weber

City University of New York (CUNY) - Baruch College

17 Lexington Avenue
New York, NY 10010
United States

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