Please enable JavaScript.
Coggle requires JavaScript to display documents.
FMI week 4 Secondary markets of equity - Coggle Diagram
FMI week 4 Secondary markets of equity
Trading
Market structure
Limited order market /order driven market
buyer and sellers interact directly
price determined by buying/selling orders
market order and limit orders interact to set the price
market order:
buy or sell at best price available, execute immediately
Limit order:
allows you set a max buying price for buy order, minimum sale price for sell orders.
order matching
Continuous auctions:
trades occur at anytime during trading. executed in sequence of bilateral matches.
Call auctions:
only at pre-specific time. executed using multilateral matches.
open
: helps to discover price and reduce volatility.
close
: helps to ensure efficient price and reduce manipulation risk
Crossing system:
prices reference another market
Order precedence rules
price priority:
orders with best price will be executed first
time priority:
orders with same price, first place first get. encourage traders to expose their orders.
Display precedence:
display quantities order precedes undisplayed.
Size precedence/ pro-rate allocations:
two orders at parity, fill in proportional to sizes.
Tick size:
minimum price change
cost of price priority due to price improvements
too small will be cheap to free ride, won't expose orders to market
too large will be costly to trade.
tick sizes may depend on share pice
Quote driven market/dealer/intermediated market
Dealers are counterparty to all traders
prices set by dealers. offer bid to sellers, offer ask to buyers. profit from spread.
Dealer quotes
inside spread:
(highest bid and lowest ask) lower than average dealer spread due to competition
Hybrid market
Combination of above
Transparency:
observe information in trading
Pre-trade:
current bid&ask price, depth of orders, price and volume of orders, maybe participant identity
Post-trade:
price and volumes, participant identity, venue identity, speed?
Dark trading: t
rade occur without pre-trade transparency.
allow institutions to execute large trades with minimal price impact
Benefit
Block liquidity
Reduce market impact costs and information leakages
potential time priority
Reduced exchange rate
Risks
Fragmentation
Reduced liquidity
increased spread
less efficient price discovery
reduce incentive to display liquidity
lack of transparency
reduced monitoring
unlevel playing field between market operators and cross system operators.
Regulation
too much harm price discovery
set minimum trade size
maximum dark trade volume per venue
access and other regulatory requirements.
ASIC approach
??
transaction costs
Explicit costs
brokerage commissions
exchange rates
taxes
implicit costs
bid-ask spread
market impact costs
opportunity and timing costs
Leveraged trading
buying on margin
short selling
Algorithmic trading and High Frequency Trading
Algo trading:
electronic trading where executions are delivered by predetermined parameters.
Academic proves it improve quality of market by lower spread, and more efficient price discovery.
HFT
(subset)
large volume of orders, amendments and cancellations.
small positions, high turnover, low margin
very short holding period
May lead to
flash crush
circuit breakers/trading curb which halt trading may helpful
Australian Equity market landscape
Four licensed stock exchange
ASX
CBOE( no list stocks, only ETFs)
NSX
SSX
all governed by ASIC
broker in Australia
regulated professional buy/sell securities for clients for fees
full service and online brokers
stock brokerage are local, future brokerage are large overseas.
issuers in Australia
Private sector companies are issuers for equities
Listed managed investment schemes are issuers for equity indexes
investors in Australia
85% are institutional investors
retail are 15-20%, increased after COVID
clearing and settlement
process of post trade transfer of money and securities
ASX clear as clearing house
ASX settlement is settlement system
revenue of clear and settlement account for 15% of ASX revenue
Data vendors: 18 data providers with 13 delayed information providers.