Andreas Park PRO
Professor of Finance at UofT
Types of Market Organization
Topic:
Technological Innovation has always affected trading ....
Old days of trading: highly specialized humans
Modern Day Trading
Autonomous Algorithms run the show
Modern Day Trading
Trading floors are more suited for parties and journalists
!
Modern Day Trading
And the former heart of Wall Street is now in a faceless & glamourless suburb of Mawah, NJ
What drove this change of Wall Street (and the demise of the NYSE as we knew it)?
Why? The machines ...
- Many trading strategies are more-or-less mechanical/probabilistic
- computers are
- faster,
- cheaper, and
- more reliable
- Computer algos allow much wider scope
Source: Bloomberg News, Feb 20, 2015
Note: The biggest disruptors (the HFTs) came from the outside of the traditional system (kinda).
The result?
entire career streams disappear
MIT Technology Review, Feb 07, 2017
Markets get better: the post earnings announcement drift had been a long-standing puzzle in finance. ... It's gone.
What's the impact?
Source: Martineau JFQA 2020
Markets get better: larger fraction of return variation is captured by market returns
What's the impact?
Source: Park & Wang (WP 2020)
Algo traders are key for liquidity provision: they go away, liquidity tanks
What's the impact?
Source: Malinova, Park, Riordan (WP 2019)
The new frontier: decentralized trading (aka no exchanges!!!)
The big question for you:
Are computer scientists just better and why am I here?
My answer: ...
No, they solve different problems!
.... and in this course you will learn what "your" task in this business is
.... and in this course you will learn what "your" task in this business is
You will learn ...
- how to systematically identify a business/risk/economic problem
- how to solve the problem
- how to implement the solution
There are many ways to arrange trading
central limit order book
centralized auction
bilateral
negotiation
Request
for Quote
open
outcry
How hard is it to organize trading?
central limit order book
operational complexity
centralized auction
bilateral
negotiation
Request
for Quote
open
outcry
Do you know who you are trading with?
central limit order book
operational complexity
centralized auction
bilateral
negotiation
Request
for Quote
open
outcry
little
a lot
How good is the arrangement at discovering the market price?
central limit order book
operational complexity
centralized auction
bilateral
negotiation
Request
for Quote
open
outcry
bad
good
- The bottom line: there are many, many different ways to trade.
- We will use limit order book trading in our cases but the instruments you trade can often be traded in many other ways!
Players or:
The Ecosystem
Regulators
Exchanges
ATS
Vendors
Brokers
Institutional investors
retail investors
pro traders
Settlement and depository
Introduction to Trading and MGT435
By Andreas Park
