Market Structure and Statistics

Author Name: 
Patrick Hazart

In recent years, most security markets have experienced fragmentation. Besides traditional stock exchanges, trade could be done on new trading venues or within brokerage firm. In United States, Goldman Sachs, Morgan Stanley or UBS are some of the firms that have developed their own proprietary trading platforms. In Europe, “systemic internalisers”, which are investments firms executing client orders on their own account, are authorized since November 1st 2007. Most often, these new possibilities are offset by strict reporting obligations, for which specialized firms develop new services.

Whether such fragmentation benefits the market remains uncertain. But it obviously complicates trading analysis with an increase in the number of sources, either coming from different trading venues, or from different reporting systems. Analysis suggests that these systems interact. But tools are missing to properly measure this interaction and trading platforms are often analyzed separately from each others. Information provided by reporting system is also separated from information provided by execution venue. However analysis suggests that certain overlap may exist between the two set of data.

Besides that, technological progresses in trading process (algorithm trading development) have changed the meaning of the most traditional data. It becomes more complex to link raw data of electronic trading, their economic meaning and the end investor needs.

This short article emphasizes the difficulties to comprehend the new situation.

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