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
Date Written: May 20, 2016
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: Suggested Citation