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Trading Systems in European Stock Exchanges: Current Performance and Policy Options
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1990
Year
TradeBatch AuctionsRelative CompetitivenessEuropean Stock ExchangesGlobal ExchangeMarket DesignForeign Exchange OptionMarket MicrostructureAsset PricingInternational FinanceAlgorithmic TradingAilsa RoellEconomicsHigh-frequency TradingTrading ModelGeography Of FinanceFinanceAutomated TradingSecurity MarketBusinessCurrent PerformanceFinancial EngineeringForeign Exchange MarketPolicy Options
Financial market deregulation and liberalized capital flows have created uncharted challenges, prompting scrutiny of market operation design, competitiveness, and the evolving hierarchy of European financial centers. The study investigates how trading‑system innovations and regulation influence European market competitiveness and projects the future geographic structure of integrated stock markets. The authors compare auction versus market‑making models, concentration versus fragmentation, batch versus continuous markets, and dealer capacities, drawing policy conclusions from detailed analyses of European and North American exchange experience.
Stock markets Marco Pagano and Ailsa Roell The deregulation of financial markets and the liberalization of international capital flows raises a number of challenging issues. Market participants and policy-makers are treading largely uncharted territories. This article offers some markers, exploring the implications of economic principles and producing new evidence on European stock exchanges. One vast set of issues concerns the design of market operations. The article compares the merits, both in theory and in practice, of auctions versus market-making, of concentration versus fragmentation of trading, of batch auctions versus continuous markets and of single- versus dual-capacity dealers. Policy conclusions are grounded on a detailed analysis of the experience accumulated on European and North American exchanges. Another theme runs through this article: the implications for the relative competitiveness of European financial markets. Rapid changes have already occurred in the late 1980s: while much wholesale trade has moved to London, continental exchanges have grown at an accelerated pace. We examine whether this is connected to innovations in trading systems and regulation. The paper also attempts to foresee the geographical structure of Europe's integrated stock markets. At stake is the hierarchy of financial centres, the potentially dangerous drift towards competitive deregulation and the scope for wholly computerized trading where market location becomes irrelevant.