|
FEDERAL RESERVE BANK OF ATLANTA |
||
| Conference papers | ||
| "Market Making with Costly Monitoring: An Analysis of the SOES Controversy" | ||
|
Chair:
|
Stephen D. Smith, H. Talmage Dobbs Jr. Chair in Finance, Georgia State University, and Visiting Scholar, Federal Reserve Bank of Atlanta | |
|
Presenter:
|
Patrik Sandas, Assistant Professor in Finance, the Wharton School, University of Pennsylvania | |
|
Discussant:
|
Terrence Hendershott, Xerox Assistant Professor of Computers and Information Systems and Finance, William E. Simon Graduate School of Business, University of Rochester, New York | |
| "Liquidity in an Automated Auction" | ||
|
Chair:
|
Larry D. Wall, Research Officer, Federal Reserve Bank of Atlanta | |
|
Presenter:
|
Ian Domowitz, Mary Jean and Frank P. Smeal Professor of Finance, Smeal College of Business Administration, Pennsylvania State University, University Park | |
|
Discussant:
|
Albert S. Kyle, Associate Professor of Finance, Fuqua School of Business, Duke University, Durham, North Carolina | |
| "Tick Size, Bid-Ask Spreads, and Market Structure" | ||
|
Chair:
|
Robert H. Battalio, Associate Professor of Finance, University of Notre Dame, Notre Dame, Indiana | |
|
Presenter:
|
Roger D. Huang, Kenneth R. Meyer Professor in Global Investment Management, University of Notre Dame, Notre Dame, Indiana | |
|
Discussant:
|
Robert H. Jennings, Visiting Economist, New York Stock Exchange, and Jack R. Wentworth Professor of Business, Indiana University, Bloomington | |
| "Designing Equitable Electronic Markets" | ||
|
Chair:
|
Gerald P. Dwyer Jr., Vice President, Research Department, Federal Reserve Bank of Atlanta | |
|
Presenter:
|
Shyam Sunder, James L. Frank Professor of Accounting, Economics, and Finance, Yale University, New Haven, Connecticut | |
|
Discussant:
|
Andrew B. Whinston, Hugh Cullen Centennial Chair Professor in Information Systems, University of Texas, Austin | |
| "Electronic Finance" Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System |
||
| "The Structure of the U.S. Equity Markets" In 1975, Congress directed the Securities and Exchange Commission (SEC) to develop a national market system in which all orders to buy or sell equities would interact. A national market system abhors fragmentation and assumes that one market will best serve the needs of all investors. Such an assumption does not capture the realities of modern markets. Investors have different needs, and different markets will develop to serve these needs. Fragmented markets are a natural result of competition. Within the United States, the sharing of trade and quote information among markets helps to mitigate any deleterious effects of fragmentation. The markets of tomorrow will be global. In a global market, the SEC will have to give up its goal of a national market system and focus on other issues. For example, it will be a challenge to provide just the sharing of trade information across borders. Further, technology will allow a market center or order-gathering function to be located anywhere in the world. This threat of relocation will place constraints on U.S. regulators, and global trading will make it more difficult for U.S. authorities to regulate investment practices and to protect U.S. investors. |
||
|
Moderator:
|
Anthony M. Santomero, President, Federal Reserve Bank of Philadelphia | |
|
Paper Presenter:
|
Marshall E. Blume, Howard Butcher III Professor of Financial Management, the Wharton School, University of Pennsylvania, Philadelphia, and Director, Rodney L. White Center for Financial Research, Philadelphia (Blume Powerpoint presentation) |
|
|
Discussants:
|
Harold S. Bradley, President, American Century Ventures, Kansas City, Missouri (Bradley Powerpoint presentation) |
|
| Anthony M. Sanfilippo, Executive Vice President, Knight Trading Group Inc., and President, Knight Capital Markets Inc., Purchase, New York (Sanfilippo Powerpoint presentation) |
||
| "Clearing and Settling Financial Transactions, Circa 2000" The convenience, safety, and trust required for national and global markets to function are largely provided by clearing and settlement arrangements. Well-designed settlement arrangements can address the most serious risk of loss of the entire principal value of an asset being traded. A spectrum of risk-control arrangements and procedures at the clearing stage of a transaction provides further benefits. The recent and current development of clearing and settlement practices exemplifies the reengineering and continuous-improvement approaches that have been of proven value throughout the economy and that particularly have facilitated the advantageous adoption of new technologies. The resulting strength and flexibility of current practices have contributed to financial markets’ responsiveness to three major challenges and opportunities: the invention of financial derivatives (for example, futures, options, and swaps) and the establishment of exchanges to trade many of them; the availability of computing and telecommunication technology that can simultaneously link a large, geographically dispersed group of trades, and the consequent feasibility of conducting trading by means other than open outcry on a trading floor; and the explosive growth of transaction volume on a number of exchanges. |
||
|
Moderator:
|
William Witherell, Director, Financial, Fiscal, and Enterprise Affairs, Organisation for Economic Co-operation and Development, Paris | |
|
Paper Presenter:
|
Edward J. Green, Senior Policy Adviser, Federal Reserve Bank of Chicago | |
|
Discussant:
|
Richard R. Lindsey, Copresident, Bear Stearns Securities Corp., New York City | |
| "What Glory Price? Institutional Form and the Changing Nature of Equity Trading" The last decade has witnessed marked changes in the way equity securities are traded, especially in the United States. Trades are no longer consummated only on a formal stock exchange but also on a continuum of functionally equivalent trading venues with radically different organizational forms. This session discusses how equity markets are evolving and the underlying economic reasons for these changes. It argues that two factors, technological progress and the process of regulatory arbitrage, have enabled newer, more efficient organizational forms for stock trading. However, the proliferation of trading venues has brought attendant problems. Markets have fragmented as new entrants unbundle the standard package of services offered by traditional exchanges and compete for only the most profitable portions of the business. This development has posed challenges for federal regulators such as the Securities and Exchange Commission, which would like to foster competition and encourage innovation. It has also altered the competitive positions of brokers who are customers of the exchanges. This discussion argues that such a landscape may challenge simple economic maxims such as "the law of one price." The policy implications of this argument are legion when considered against the backdrop of securities regulations that have devolved from a framework adopted in the 1930s. |
||
|
Moderator:
|
Douglas T. Breeden, Chairman and Cofounder, Smith Breeden Associates, Chapel Hill, North Carolina, and Dalton McMichael Professor of Finance, University of North Carolina, Chapel Hill | |
|
Paper Presenter:
|
Erik R. Sirri, Associate Professor of Finance, Babson College, Wellesley, Massachusetts | |
|
Discussants:
|
Peter B. Madoff, Senior Managing Director, Bernard L. Madoff Investment Securities and Madoff Securities International, and Manager, Primex Holdings LLC, New York City George A. Sofianos, Vice President and Head of Research, New York Stock Exchange (Sofianos Powerpoint presentation) |
|
| "In Search of Liquidity in the Internet Era" The Internet has had a profound and permanent impact on the trading environment. In exploring the effect of the Internet on market microstructure, especially in terms of liquidity, price movements could be viewed as arising from two fundamental forces: (1) new information flows that induce shifts in the consensus beliefs of traders and (2) frictions arising from the trading process. Price volatility reflects the volatility of both terms and their joint interaction, factors that have been profoundly affected by the Internet. Entirely new information sources, such as chat room message traffic and whisper numbers, provide on-line traders with up-to-date information. This “democratization of information” has reduced the information gap between institutional and retail investors. Simultaneously, the growing automation of securities markets has reduced trading costs. Together with the globalization of markets, these factors have induced large numbers of retail traders to enter the market directly. The information available on the Internet serves as a coordination device for on-line traders, who tend to respond in similar ways to the same information signals. The result has been sharply higher intraday price volatility and diminished liquidity, along with episodes of outright market manipulation. In the short run, these phenomena represent the dark side of the Internet revolution. But information and automation also allow cross-border linkages that allow traders to access and link pools of liquidity in very disparate forms. Network externalities provide strong incentives for markets to create both formal and informal linkages, deepening markets and improving price efficiency. These factors operate on a longer-term horizon. The net impact on financial markets is thus a complex phenomenon. |
||
|
Moderator:
|
Gay H. Wisbey, Director, Markets and Exchanges, Financial Services Authority, London | |
|
Paper Presenter:
|
Ananth Madhavan, Managing Director of Research, ITG Inc., New York City, and Charles P. Thorton Professor of Finance and Business Economics, University of Southern California, Los Angeles | |
|
Discussants:
|
Mark C. Brickell, Managing Director, J.P. Morgan Securities, New York City | |
| Dean Furbush, Senior Vice President, Nasdaq Transaction Services, Washington, D.C. | ||