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1 – 10 of 35This paper aims to analyze and discuss the implications of the August 2010 decision of the D.C. Circuit Court of Appeals vacating and remanding to the SEC its December 2008 order…
Abstract
Purpose
This paper aims to analyze and discuss the implications of the August 2010 decision of the D.C. Circuit Court of Appeals vacating and remanding to the SEC its December 2008 order approving a proposed fee filed by NYSE Arca, LLC for its depth‐of‐book product ArcaBook. It also seeks to consider the effect on the court's decision of the Dodd‐Frank Act amendments to Section 19(b) of the Exchange Act.
Design/methodology/approach
The paper analyzes the evolution of the SEC's policy regarding SRO market data fees including the 1999 Concept Release on Market Information, the Advisory Committee on Market Information, the effects of decimalization and the 2005 adoption of Regulation NMS. It focuses on market data fee policy in connection with the Commission's decade‐long project to increase the role of competition in the US securities markets, culminating in the 2006 NYSE Arca fee filing, the SEC's 2008 order approving those fees and the NetCoalition decision.
Findings
The court's decision that a cost analysis is not irrelevant to the SEC's review of proposed SRO fee filings brings clarity and finality to a long‐standing dispute within the Commission and the securities industry and identifies a procedure for reaching an economically sound determination of “fair and reasonable” fees for SRO market data.
Practical implications
A cost‐based analysis of SRO market data fee filings is likely to result in a significant decline in market data revenues for those exchanges that charge fees for their data. For the Commission, cost‐based analysis is likely to require a significant reallocation of its regulatory staff and resources.
Originality/value
The paper presents a useful analysis for securities regulatory lawyers and financial analysts and investors following the stock exchange and financial information industries.
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The purpose of this paper is to present an overview of the flash crash, and explain why and how it happened.
Abstract
Purpose
The purpose of this paper is to present an overview of the flash crash, and explain why and how it happened.
Design/methodology/approach
The author summarizes several studies suggesting various perspectives on the flash crash and its causes. Furthermore, the author highlights recently proposed and introduced improvements and regulations to reduce the risk of having similar market collapses in the future.
Findings
It is an overview paper that highlights the state of the art on the subject.
Research limitations/implications
Paper does not report any research findings of the author.
Practical implications
High-frequency trading (HFT) along with its pros and cons is the new normal for most of the current electronic trading activity in the markets. It is well recognized by the experts that HFT may have its important shortcomings whenever the rules and regulations are not up to date to match the technological progress offering faster computational and execution capabilities.
Social implications
HFT has created a societal discussion about its benefits and potential deficiencies as the common practice for trading due to potentially unequal access to market data by various categories of participants. Such arguments help the regulators to develop improvements to reduce the market risk and nurture more robust and fair markets for all.
Originality/value
The paper has a tutorial value and summarizes the current state of HFT. The readers of more interest are guided to the most relevant literature for further reading.
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James Burns, Georgia Bullitt, Howard Kramer, Jack Habert and James Doench
– To explain the requirements of Regulation Systems Compliance and Integrity (“Regulation SCI”) and the new responsibilities of organizations defined as “SCI entities.”
Abstract
Purpose
To explain the requirements of Regulation Systems Compliance and Integrity (“Regulation SCI”) and the new responsibilities of organizations defined as “SCI entities.”
Design/methodology/approach
Explains the purpose of Regulation SCI, the responsibilities of SCI entities, systems covered by the rules (“SCI systems”), and specific obligations of SCI entities, including the establishment and periodic review of policies and procedures, compliance with the Exchange Act, designation of “responsible SCI personnel,” appropriate corrective action in response to “SCI events,” notification of systems changes, annual “SCI reviews,” business continuity and disaster recovery testing, and recordkeeping and filing. Discusses future implications for SCI Entities and other market participants.
Findings
Regulation SCI launches a broad and extensive overlay of rules and guidance to address systems capacity and integrity issues that have increasingly affected the securities markets. The adoption of this regulation suggests that there will continue to be increased scrutiny by the SEC, FINRA and other regulators of the automated systems and related policies and procedures of all market participants.
Practical implications
SCI entities will need to devote considerable attention and resources not just to prevent incidents where possible, but also to establish systems for ensuring thorough compliance and well-documented and reasonable follow-up actions where necessary. All market professionals – including broker-dealers, investment advisers, pension funds and investment companies – should study the new regulation and consider adopting appropriate policies and procedures to address operating as well as cyber security issues with respect to their own critical operating technology.
Originality/value
Practical guidance from experienced financial services lawyers.
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Jennifer Morton, Russell Sacks, Jenny Ding Jordan, Steven Blau, P. Sean Kelly, Taylor Pugliese, Andrew Lewis and Caitlin Hutchinson Maddox
This article provides a resource for traders and other market participants by providing an overview of certain automatic circuit breaker mechanisms and discretionary powers that…
Abstract
Purpose
This article provides a resource for traders and other market participants by providing an overview of certain automatic circuit breaker mechanisms and discretionary powers that the U.S. Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA) and the U.S. president, as applicable, can exercise to pause or stop the trading of individual securities or trading activities across exchanges during extreme market volatility, each of which can cause interruptions to trading activity.
Design/methodology/approach
This article surveys automatic and discretionary mechanisms to halt trading activity under extreme market conditions. In particular, the article examines automatic cross-market circuit breakers, limit up-limit down pauses, the alternative uptick rule, as well as discretionary authority to stop short selling of particular securities and to stop trading across exchanges.
Findings
The article concludes that market participants must be cognizant not only of automatic cross-market circuit breakers, but also several other forms of potential market disruptions that may occur due to increased market volatility during the COVID-19 pandemic and beyond.
Originality/value
By exploring various mechanisms that respond to market disruption, this article provides a valuable resource for traders and other market participants looking to identify and respond to potential interruptions to their trading activity.
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An agent-based market simulation is utilized to examine the impact of high frequency trading (HFT) on various aspects of the stock market. This study aims to provide a baseline…
Abstract
Purpose
An agent-based market simulation is utilized to examine the impact of high frequency trading (HFT) on various aspects of the stock market. This study aims to provide a baseline understanding of the effect of HFT on markets by using a paradigm of zero-intelligence traders and examining the resulting structural changes.
Design/methodology/approach
A continuous double auction setting with zero-intelligence traders is used by adapting the model of Gode and Sunder (1993) to include algorithmic high frequency (HF) traders who retrade by marking up their shares by a fixed percentage. The simulation examines the effects of two independent factors, the number of HF traders and their markup percentage, on several dependent variables, principally volume, market efficiency, trader surplus and volatility. Results of the simulations are tested with two-way ANOVA and Tukey’s post hoc tests.
Findings
In the simulation results, trading volume, efficiency and total surplus vary directly with the number of traders employing HFT. Results also reveal that market volatility increased with the number of HF traders.
Research limitations/implications
Increases in volume, efficiency and total surplus represent market improvements due to the trading activities of HF traders. However, the increase in volatility is worrisome, and some of the surplus increase appears to come at the expense of long-term-oriented investors. However, the relatively recent development of HFT and dearth of appropriate data make direct calibration of any model difficult.
Originality/value
The simulation study focuses on the structural impact of HF traders on several aspects of the simulated market, with the effects isolated from other noise and problems with empirical data. A baseline for comparison and suggestions for future research are established.
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Andre E. Owens, Soo J. Yim, Beth A. Stekler and Cristie L. March
The purpose of this paper is to explain rule changes proposed by the Securities and Exchange Commission designed to address regulatory concerns related to “dark pools” of…
Abstract
Purpose
The purpose of this paper is to explain rule changes proposed by the Securities and Exchange Commission designed to address regulatory concerns related to “dark pools” of liquidity.
Design/methodology/approach
The paper explains the background and policy issues related to dark pools, discusses the SEC's amended definition of “bid” or “offer” under Regulation NMS to include “actionable indications of interest” (“actionable IOIs”), outlines a proposed reduction of the average daily trading volume threshold that triggers a public display of ATS orders from 5 percent to 0.25 percent, discusses a proposal to require an alternative trading system (“ATS”) to disclose its identity in real time on its reports of executed trades, and explains proposed size‐discovery exclusions to the changes detailed above.
Findings
The paper finds that the proposed rules represent the Commission's attempts to improve the NMS without inhibiting the use or continued technological development of trading strategies that are consistent with NMS goals.
Originality/value
The paper provides a clear explanation of complex market mechanisms and proposed rules by experienced financial institution and securities lawyers.
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Briefly reviews previous literature by the author before presenting an original 12 step system integration protocol designed to ensure the success of companies or countries in…
Abstract
Briefly reviews previous literature by the author before presenting an original 12 step system integration protocol designed to ensure the success of companies or countries in their efforts to develop and market new products. Looks at the issues from different strategic levels such as corporate, international, military and economic. Presents 31 case studies, including the success of Japan in microchips to the failure of Xerox to sell its invention of the Alto personal computer 3 years before Apple: from the success in DNA and Superconductor research to the success of Sunbeam in inventing and marketing food processors: and from the daring invention and production of atomic energy for survival to the successes of sewing machine inventor Howe in co‐operating on patents to compete in markets. Includes 306 questions and answers in order to qualify concepts introduced.
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The purpose of this paper is to evaluate how markets in financial instruments directive (MiFID) and regulation national market system (Reg NMS) affect the competition for order…
Abstract
Purpose
The purpose of this paper is to evaluate how markets in financial instruments directive (MiFID) and regulation national market system (Reg NMS) affect the competition for order flow among trading venues in, respectively, Europe and the USA.
Design/methodology/approach
The paper examines the differences between MiFID and Reg NMS and provides, based on market microstructure principles, insights as to their likely impact on European and the US securities markets.
Findings
Although MiFID and Reg NMS share the common objective of enhancing competition in securities markets, they adopt different provisions with respect to three issues that strongly influence the competition for order flow among trading venues. Specifically, some of the provisions set forth by the US regulation with respect to the best execution duty, the consolidation of market data and the disclosure of execution quality information appear to be more effective, compared to the European Union ones, in strengthening competition for order flow among trading venues.
Research limitations/implications
Regulatory factors can only partly explain the current structure of the European and US securities markets. Technology and heterogeneity in traders' demand are other important factors that concur in shaping the European and US markets.
Practical implications
The degree of competition for order flow among trading venues depends on how regulations define the best execution duty, the availability of updated and consolidated pre‐trade (i.e. quotations) and post‐trade (i.e. transactions) information and the efficiency of post‐trading infrastructures.
Originality/value
The paper addresses issues not yet investigated and provides valuable insights for financial intermediaries, incumbent and prospective exchanges as to the competition in the securities industry, and to regulators as to the likely impact of the new regulations.
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The service denial threats are regularly regarded as tools for effortlessly triggering online-based services offline. Moreover, the present occurrences reveal that these threats…
Abstract
Purpose
The service denial threats are regularly regarded as tools for effortlessly triggering online-based services offline. Moreover, the present occurrences reveal that these threats are being constantly employed for masking other vulnerable threats like disseminating malware, information losses, wire scams and mining bitcoins (Sujithra et al., 2018; Boujnouni and Jedra, 2018). In some cases, service denials have been employed to cyberheist financial firms which sums around $100,000. Documentation from Neustar accounts that is about 70 percent of the financial sector are aware of the threat, and therefore, incidents result in few losses, more than 35 percent of service denial attempts are identified as malware soon after the threat is sent out (Divyavani and Dileep Kumar Reddy, 2018). Intensive packet analysis (IPA) explores the packet headers from Layers 2 to 4 along with the application information layer from Layers 5 to 7 for locating and evading vulnerable network-related threats. The networked systems could be simply contained by low potent service denial operations in case the supplies of the systems are minimized by the safety modules. The paper aims to discuss these issues.
Design/methodology/approach
The initial feature will be resolved using the IPDME by locating the standard precise header delimiters such as carriage return line feed equally locating the header names. For the designed IPDME, the time difficulties in locating the initial position of the header field within a packet with static time expenses of four cycles. For buffering packets, the framework functions at the speed of cables. Soon after locating the header position, the value of the field is mined linearly from the position. Mining all the field values consequentially resolves the forthcoming restrictions which could be increased by estimating various information bytes per cycle and omitting non-required information packets. In this way, the exploration space is minimized from the packet length to the length of the header. Because of the minimized mining time, the buffered packets could be operated at an increasing time.
Findings
Based on the assessments of IPDME against broadly employed SIP application layer function tools it discloses hardware offloading of IPDME it could minimize the loads on the essential system supplies of about 25 percent. The IPDME reveals that the acceleration of 22X– 75X as evaluated against PJSIP parser and SNORT SIP pre-processor. One IPDME portrays an acceleration of 4X–6X during 12 occurrences of SNORT parsers executing on 12 processors. The IPDME accomplishes 3X superior to 200 parallel occurrences of GPU speeded up processors. Additionally, the IPDME has very minimal latencies with 12X–1,010X minimal than GPUs. IPDME accomplishes minimal energy trails of nearly 0.75 W using two engines and for 15 engines it is 3.6 W, which is 22.5X–100X less as evaluated to the graphic-based GPU speeding up.
Originality/value
IPDME assures that the system pools are not fatigued on Layer 7 mining by transmitting straightforwardly based on network intrusions without branching into the operating systems. IPDME averts the latencies because of the memory accesses by sidestepping the operating system which essentially permits the scheme to function at wired speed. Based on the safety perception, IPDME ultimately enhances the performance of the safety systems employing them. The increased bandwidth of the IPDME assures that the IPA’s could function at their utmost bandwidth. The service time for the threat independent traffic is enhanced because of minimization over the comprehensive latencies over the path among the network intrusions and the related applications.
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