Automating the Price Discovery Process: Some International Comparisons and Regulatory Implications

October 1, 1992

Preview Citation

Format: Chicago

Ian Domowitz. Automating the Price Discovery Process: Some International Comparisons and Regulatory Implications, (USA: International Monetary Fund, 1992) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Automated trade execution systems are examined with respect to the degree to which they automate the price discovery process. Seven levels of automation of price discovery are identified, and 47 systems are classified according to these criteria. Systems operating at various levels of automation are compared with respect to age, geographical location, and type of securities traded. Information provided to market participants, and asymmetries of information between traders with direct access to the automated market and outside investors also are examined. It is found, for example, that the degree of asymmetric information increases with the level of automation of price discovery. The potential for trading abuses related to prearranged trading, noncompetitive execution, and trading ahead of customers is analyzed for each level of automation. Certain levels of automation widen the opportunities for trading abuses in some respects, but may narrow them in others.

Subject: Automation, Financial institutions, Futures, International trade, Options, Stocks, Technology, Trade systems

Keywords: Automation, Futures, Limit order, Market condition, Market efficiency, Market liquidity, North America, Options, Options market, Price discovery mechanism, Price discovery process, Stocks, Telephone market, Trade systems, Trading market mechanism, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1992/080
Stock No:

WPIEA0801992
ISBN:

9781451850253
ISSN:

1018-5941

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