The Economics and Regulation of Secondary Trading Markets

Presented at Initiating Conference 'New Special Study of the Securities Markets', held at Columbia Law School, 23 & 24 March 2017

101 Pages Posted: 3 Aug 2017

See all articles by Ryan J. Davies

Ryan J. Davies

Babson College - Finance Division

Erik R. Sirri

Babson College

Date Written: July 20, 2017

Abstract

We examine current areas of concern in the regulation of secondary trading markets, including questions concerning market fragmentation, protected orders, minimum tick size, maker-taker pricing models, transparency and dark liquidity, algorithmic and high-frequency trading, the duties and obligations of broker-dealers who handle customer orders, system robustness, flash crashes and episodic liquidity, exchange traded funds, distributed ledger technology, the ownership and usage of market data, and the governance of market data plans. We also discuss potential ways to reduce transaction costs and improve transparency in fixed income markets. To the extent possible, we summarize key findings from the existing academic literature, describe directions for future research, and offer suggestions for future rulemaking.

Keywords: Regulation NMS, Regulation SCI, Trade-at Rule, Dark Pools, Tick Size Pilot, High Frequency Trading, Best Execution Obligations, Order Type Complexity, Payment for Order Flow, Maker-Taker Pricing, Flash Crashes, ETFs, Quote Stuffing, Blockchain, Market Data Ownership, Fixed Income Secondary Trading

JEL Classification: G00, G18, G28

Suggested Citation

Davies, Ryan J. and Sirri, Erik R., The Economics and Regulation of Secondary Trading Markets (July 20, 2017). Presented at Initiating Conference 'New Special Study of the Securities Markets', held at Columbia Law School, 23 & 24 March 2017, Available at SSRN: https://ssrn.com/abstract=3012536 or http://dx.doi.org/10.2139/ssrn.3012536

Ryan J. Davies (Contact Author)

Babson College - Finance Division ( email )

220 Tomasso Hall
Babson Park, MA 02457-0310
United States
781-239-5345 (Phone)
781-239-5004 (Fax)

HOME PAGE: http://www.ryanjdavies.net

Erik R. Sirri

Babson College ( email )

231 Forest Street
Babson Park, MA 02457
United States
781-239-5799 (Phone)

HOME PAGE: http://faculty.babson.edu/sirri/

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