Sven S. Groth

The New Landscape - How MiFID Drives Changes Among European Execution Venues

The Markets in Financial Instruments Directive (MiFID) is the new regulatory framework for investment services in the European Economic Area (EEA) and has to be applied by investment firms and Regulated Markets in Europe from November 1st 2007. It is expected to trigger fundamental changes in the European trading landscape. The article outlines a framework that serves to classify new initiatives in equities trading. This framework is then applied to present recent initiatives by established exchanges or investment firms that are based on the new opportunities provided by MiFID in the context of multilateral trading and internalisation.

How to enable automated trading engines to cope with news-related liquidity shocks? Extracting signals from unstructured data

Abstract Financial markets are characterised by high levels of complexity and non-linearity. Information systems have often been applied to support investors by forecasting price changes in securities markets. In addition to the asset price, liquidity represents another financial variable that has a high relevance for investors because it constitutes a main determinant of total transaction costs. Previous research has shown that the level of liquidity is affected by the publication of corporate disclosures. To derive an optimal order execution strategy that minimises the transaction costs, investors as well as automated trading engines must be able to anticipate changes in the available market liquidity. However, there is no research on how to forecast the impact of corporate disclosures on market liquidity. Therefore, we propose an IT artefact that allows automated trading engines to appropriately react to news-related liquidity shocks. The system indicates whether the publication of a regulatory corporate disclosure will be followed by a positive liquidity shock, i.e., lower transaction costs compared to historical levels. Utilising text mining techniques, the content of the corporate disclosures is analysed to generate a trading signal. Furthermore, the trading signal is evaluated within a simulation-based use case that considers English and German corporate disclosures and is shown to be of economic value.

Discovering Intraday Market Risk Exposures in Unstructured Data Sources: The Case of Corporate Disclosures

Capital markets react promptly and significantly to critical events that have not been anticipated by market participants. Prominent examples of such market behaviour which risk management activities turn their attention to became evident during the last few months. Today, classic risk management tools perform complex calculations on the basis of structured data sources such as historical price series. In contrast, unstructured data sources, such as corporate disclosures, are widely disregarded. However, such data that has been released newly could carry information that is not reflected in the structured data available in such a situation. We aim to utilize such unstructured data sources and present a text mining-based approach to detect intraday market risk exposures that result from the event of newly published information. Our results provide evidence that unstructured data contains valuable information to discover intraday risk exposures promptly, i.e. represent valuable data sources in this context.

Algorithmic Trading Engines and Liquidity Contribution: The Blurring of “Traditional” Definitions

Being provided with a unique high-frequency dataset, we are able to show by means of an empirical analysis that computer-based traders, i.e. Algorithmic Trading (AT) engines, behave significantly different from human traders with regard to their order cancellation behaviour. Furthermore, given exactly this difference we point out that the application of well-established “traditional” liquidity measurement methods may no longer be unequivocally applicable in today’s electronic markets. At least those liquidity measures that are based on committed liquidity need to be questioned.

Further Evidence On Technology and Liquidity Provision: The Blurring of Traditional Definitions

In “traditional” market microstructure, limit orders are usually viewed as patiently supplying liquidity. Building upon Hasbrouck & Saar (2008), we argue that this assumption does not necessarily have to hold true in today’s electronic markets and derive implications for liquidity measurement methods. We investigate trading of German blue-chip DAX30 companies on Xetra, an electronic limit order book. Being provided with a unique high-frequency dataset, we are able to determine whether or not an order has been submitted by an algorithm. “Algorithmic Trading” engines allow order submissions without human intervention. We show that the cancellation probability of limit orders submitted by algorithms is significantly higher than the one of limit orders submitted by “normal” human traders. Furthermore, given exactly this difference we point out that the application of well-established “traditional” liquidity measurement methods may no longer be unequivocally applicable in electronic markets with a large degree of algorithmic activity. At least those liquidity measures that are based on “committed liquidity” need to be questioned.

Neue Börsenlandschaft in Europa? Die Umsetzung der MiFID aus Sicht europäischer Marktplatzbetreiber

Der Beitrag beschreibt die Ergebnisse einer im dritten Quartal 2007 durch das E-Finance Lab durchgef hrten Studie. Gegenstand ist die Untersuchung des Umsetzungsstandes der europ ischen Ausf hrungspl tze in Bezug auf die Finanzmarktrichtlinie MiFID. Weiterhin zeigt die Studie die Sicht der Marktplatzbetreiber auf k nftige Auswirkungen der MiFID im europ ischen Wettbewerb, auf wichtige Indikatoren f r Marktqualit t und auf zuk nftige Marktstrukturen im europ ischen Aktienhandel. Die Ergebnisse zeigen, dass die etablierten Marktplatzbetreiber davon ausgehen, k nftig einem verst rkten Wettbewerb durch neue Ausf hrungspl tze ausgesetzt zu sein. Diesem steigenden Wettbewerbsdruck versuchen die gro en europ ischen Marktplatzbetreiber mit neuen Services zu begegnen. Vor diesem Hintergrund werden im zweiten Abschnitt des Beitrags zum einen neue Wettbewerber sowie die neuen Internalisierungsservices der drei gr ten europ ischen B rsenbetreiber vorgestellt.