AHEAD: Ad Hoc Electronic Auction Design
53 Pages Posted: 28 Dec 2020
Date Written: October 5, 2020
We introduce a new matching design for ﬁnancial transactions in an electronic market. In this mechanism, called ad hoc electronic auction design (AHEAD), market participants can trade between themselves at a ﬁxed price and trigger an auction when they are no longer satisﬁed with this ﬁxed price. In this context, we prove that a Nash equilibrium is obtained between market participants. Furthermore, we are able to assess quantitatively the relevance of ad hoc auctions and to compare them with periodic auctions and continuous limit order books. We show that from the investors’ viewpoint, the microstructure of the asset is usually signiﬁcantly improved when using AHEAD.
Keywords: Market microstructure, market design, ﬁnancial regulation, ad-hoc auctions, periodic auctions, limit order book, Nash equilibrium
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