market architecture of selected stock exchanges in ... - Gilles Daniel

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VIList of Abbreviations 1BOVESPACSFBCSRCCVMDFSADIFCDIFXECNETFFESEFIBVGMTGNPHSBCIMFIOSCOISEISINJETJSENASDAQNEATNMSNSENSXNYSEOECLOBSETSSSEUBSVWAPWARSETWFEWSEBolsa de Valores de São Paulo (São Paulo Stock Exchange)Credit Suisse First BostonChina Securities Regulatory CommissionComissão de Valores Mobiliários (Brazilian Securities and Exchange Commission)Dubai Financial Services AuthorityDubai International Financial CentreDubai International Financial ExchangeElectronic Communication NetworkExchange Traded FundFederation of European Securities ExchangesInternational Federation of Stock ExchangesGreenwich Mean TimeGross National ProductHong Kong and Shanghai Banking CorporationInternational Monetary FundInternational Organization of Securities CommissionsIstanbul Stock ExchangeInternational Securities Identification NumberJohannesburg Equities TradingJohannesburg Stock ExchangeNational Association of Securities Dealers Automated QuotationsNational Exchange for Automated TradingNormal Market SizeNational Stock Exchange of IndiaNamibian Stock ExchangeNew York Stock ExchangeOpen Electronic Consolidated Limit Order BookStock exchange Electronic Trading SystemShanghai Stock ExchangeUnited Bank of SwitzerlandVolume Weighted Average PriceWarsaw Stock Exchange TradingWorld Federation of ExchangesWarsaw Stock Exchange
11 Introduction1.1 Motivation and Objective of the ThesisDuring the last quarter century, exchange market and banking crises have newlyaroused interest in the regulation and supervision of financial markets. Given thattheir quality depends on rules determining the organization and regulation of thetrading process and the design of market structure, this has become subject to a newarea of research: the market microstructure theory.Market microstructure concentrates on the design of the market, on organizationaland regulatory features of the market settings and their impact on the price discoveryprocess, liquidity, information asymmetry, and volatility. Furthermore, it analyzesparticipants and their ability to observe information and use for making purchase andsale.The purpose of this paper, unlike market microstructure theory, is not to highlight theliquidity of an exchange and the use of information in the actual trading but ratherthe structural rules and their trading process on the stock exchange. However, sincethe theory emphasizes those issues, too, this study incorporates some of its keyfactors. The so-called market architecture designates the full set of rules andregulations governing the exchanges and is of utmost importance to get a detailedcomparison of stock exchanges. To emphasize the significance of market regulation,Coase states that “free markets require considerable internal infrastructure and selfregulationto function efficiently with minimal transaction costs” (Goodhart 1998,p.3). However, free financial markets may not have the same level of regulation andthrough their macroeconomic environment they may also differ in depth, liquidityand volatility. This becomes obvious considering developed and emerging financialmarkets.Financial markets in emerging countries are financially weak in comparison with
Page 1 and 2: MARKET ARCHITECTURE OF SELECTED STO
Page 3 and 4: ITABLE OF CONTENTSList of Figures .
Page 5 and 6: IIIList of Figures 1Figure 1: Equit
Page 7: VTable 33: Criteria for Auction Ext
Page 11 and 12: 3Figure 2: World Equity Market Capi
Page 13 and 14: 51.2 Course of ExplorationThis thes
Page 15 and 16: 72.2 The selected Stock ExchangesHa
Page 17 and 18: 92.2.2 The National Stock Exchange
Page 19 and 20: 112.2.3 The São Paulo Stock Exchan
Page 21 and 22: 13Table 3: São Paulo Stock Exchang
Page 23 and 24: 15Table 4: Shanghai Stock Exchange
Page 25 and 26: 17Table 5: Istanbul Stock Exchange
Page 27 and 28: 19Table 6: Warsaw Stock Exchange St
Page 29 and 30: 212.3 Organizational StructureTable
Page 31 and 32: 232.5 Exchange RatesFor the purpose
Page 33 and 34: 25compensation of this service, the
Page 35: 273.3.2 Brokered MarketsIn a broker
Page 38 and 39: 30price and quantity (Cohen and Sch
Page 40 and 41: 32However, the impact of electronic
Page 42 and 43: 343.6 Orders and Order Books3.6.1 T
Page 44 and 45: 36“Minimum Fill” (or “Minimum
Page 46 and 47: 38Figure 9: Order RoutingExchangeEx
Page 48 and 49: 40Figure 11: Order Book in an Order
Page 50 and 51: 42all exchanges. Generally, more th
Page 52 and 53: 44and decide if a parallel trading
Page 54 and 55: 46groups of similar liquidity (see
Page 56 and 57: 48Order TypesGenerally, there are t
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50The Trading DayTable 18: Opening
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52Matching and uncrossingAs already
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54Figure 14: Volatility Bands at th
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57Table 24: Market Types and Order
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59The three stages of price variati
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61according to price/time priority
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65Additionally, there are special a
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67Table 34: Discretionary Trading H
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69Order Entry ParametersThe rules o
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71Trading unitsPrices of B-shares o
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73Market ParticipantsISE members au
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Page 85 and 86:
774.6 The Warsaw Stock ExchangeIn t
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79Must-be-filled orders can be plac
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81Figure 19: Trading Phases of the
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83executable at a determined price
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854.7 The Dubai International Finan
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905 ConclusionThe ever-increasing n
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92Table 56: Synoptical Table of Mar
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94Trades effected through the Elect
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967 ReferencesLiteratureBARUCCI, E.
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98GIRIDHAR, G., 2004. Market Micros
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100PECHLANER, V. M., 2001. An Analy
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102EIDESSTATTLICHE ERKLÄRUNGIch er
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