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Regulating Merchants of Liquidity: Market Making from Crowded Floors to High-Frequency Trading

University of Pennsylvania Journal of Business Law, Vol. 18, No. 3, pp. 651-732, 2016

82 Pages Posted: 21 Oct 2015 Last revised: 17 Jul 2016

Stanislav Dolgopolov

Decimus Capital Markets, LLC

Date Written: May 20, 2016

Abstract

This Article develops a framework for analyzing the very existence of regulation of market makers and singles out such key factors as externalities in the market for liquidity, vulnerability of these market participants to certain trading strategies, and their own opportunism. This framework is explored through the evolution of the market making segment of the securities industry from crowded floors to high-frequency trading, and the regulatory outlook is analyzed from the standpoint of the current market structure crisis.

Keywords: regulation, market makers, liquidity, high-frequency trading, externalities, adverse selection, opportunism

JEL Classification: D62, D82, G18, K22, N20

Suggested Citation

Dolgopolov, Stanislav, Regulating Merchants of Liquidity: Market Making from Crowded Floors to High-Frequency Trading (May 20, 2016). University of Pennsylvania Journal of Business Law, Vol. 18, No. 3, pp. 651-732, 2016. Available at SSRN: https://ssrn.com/abstract=2677087

Stanislav Dolgopolov (Contact Author)

Decimus Capital Markets, LLC ( email )

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