اتوماسیون، سرعت و کیفیت بازار سهام در NYSE's Hybrid

Automation and trading speed are increasingly important aspects of competition among financial markets. Yet we know little about how changing a market's automation and speed affects the cost of immediacy and price discovery, two key dimensions of market quality. At the end of 2006 the New York Stock Exchange introduced its Hybrid Market, increasing automation and reducing the execution time for market orders from 10 seconds to less than one second. We find that the change raises the cost of immediacy (bid-ask spreads) because of increased adverse selection and reduces the noise in prices, making prices more efficient.

The NYSE’sintroductionofitsHybridMarketincreasesautomationandspeedsup electronictradingbyanorderofmagnitude:Theexecutiontimeformarketordersdrops from 10secondstolessthanonesecond.WeshowthattheHybridMarketraisesthecost of immediacy(theeffectivespread)byabout10%relativetoitspre-Hybridlevelandthat this increaseisattributabletohigheradverseselection.Theincreaseinadverseselectionis accompaniedbyinformationbeingincorporatedintopricesmoreefficiently. Price efficiencyisapublicgoodthatcaninformcorporateinvestmentandfinancing decisions.Afastermarketcanalsoenhancewelfarebyreducingrisk-aversetraders’ uncertaintyabouttheprobabilityandpriceatwhichexecutionmayoccur.Furthermore, faster tradingcanfacilitatemorecomplextradingstrategies. The costofimmediacyisazero-sumtransferfromliquiditydemanderstoliquidity suppliers.Calculatingtheaggregatewelfareeffectsofchangesinthecostofimmediacyin marketswithheterogeneousmarketparticipantsrequiresastructuralmodelwith numerousassumptionsabouttraders’utilitiesandstrategies.Ifalltradersfollowthe same strategiesbeforeandafterHybrid’sintroduction,theadverse-selection-driven increaseinthecostofimmediacyimpliestransfersfromuninformedtoinformedtraders. Greaterlossesbyuninformedtraderscanhinderrisk-sharing.However,ifHybridlowers the costofinformationacquisitionandmoreextremeprivate-valuetraderschooseto become informed,thenrisk-sharingcouldbeenhanced.Thepotentialpositiveandnegative welfareimpactsofchangesinthecostofimmediacyprecludesharpdeterminationsofthe overallwelfareimpactofincreasingexecutionspeed. The SEC’sgoalwithRegNMSistoenhancecompetitionbetweenmarkets.Byallowing faster marketstoignoreslowermarkets’quotes,RegNMS’sOrderProtection(trade- through) Ruleeffectivelyprecludestraditionalfloortradingbecausehumaninteractionis too slow.ThelaudablegoalsofRegNMSareto‘‘giveinvestors,particularlyretail investors,greaterconfidencethattheywillbetreatedfairlywhentheyparticipateinthe equity markets’’andto‘‘promotedeepandstablemarketsthatminimizeinvestor transactioncosts,’’(SEC, 2005). Increasingthespeedofexecutionandtheefficiencyof prices likelygivesinvestorsgreaterconfidenceoffairtreatment,butthemovetofaster electronictradingraisesthecostofimmediacyviaadverseselection.Thusitmaybe challengingtomeetbothoftheSEC’sgoals.