The Immediacy Implications of Exchange Organization

43 Pages Posted: 15 Oct 2002

See all articles by James T. Moser

James T. Moser

American University - Kogod School of Business

Date Written: August 16, 2002


The paper introduces a connection between the needs of exchanges to respond to the immediacy needs of their clientele and the need to manage the credit risks faced by exchange members. Queueing theory is used to represent the opportunity loss suffered by brokers engaging in multiple activities: order-flow origination and its intermediation. The role of market-making locals is depicted as enabling specialization. Brokers focus on originating order flow and locals on fulfilling intermediation needs. The capacity to specialize is constrained by the availability of creditworthy members acting as locals. This results in a tension between pursuit of immediacy and managing inter-member credit exposure. Two exchange rules, tick size and price limits, are evaluated for their effects in resolving this tension.

Suggested Citation

Moser, James T., The Immediacy Implications of Exchange Organization (August 16, 2002). FRB of Chicago Working Paper No. 2002-09. Available at SSRN: or

James T. Moser (Contact Author)

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States

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