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About this book

This book explores the integrity of equity markets, addressing such issues as the exchange vs. customer perspective on price discovery and the ways market participants deal with key regulatory concerns. Do market practitioners pass the integrity test? How does “market integrity” play out globally? What is the overall veracity of the marketplace? These are some of the key questions considered in this volume from the viewpoints of traders, economists, financial market strategists and exchange representative. Titled after the Baruch College Financial Markets Conference, Market Integrity: Do Our Equity Markets Pass the Test?, this book is of interest to market practitioners, trading professionals, academics and students in the field of financial markets.

The Zicklin School of Business Financial Markets Series presents the insights emerging from a sequence of conferences hosted by the Zicklin School at Baruch College for industry professionals, regulators and scholars. Much more than historical documents, the transcripts from the conferences are edited for clarity, perspective and context; material and comments from subsequent interviews with the panelists and speakers are integrated for a complete thematic presentation. Each book is focused on a well-delineated topic, but all deliver broader insights into the quality and efficiency of the U.S. equity markets and the dynamic forces changing them.

Table of Contents


Chapter 1. Integrity of Price Discovery: Perspective of Exchanges

We listened earlier to Professor Schwartz talking about price discovery and the noise associated with this phenomena. In his presentation, Bob cleverly probed our market structure for the changes that have potentially led to a degradation in market quality. An academic paper about this same issue has taken a slightly different tack by looking at quote activity. In particular, it looked at quote activity in the wake of the market access rule that went into effect in 2011 in response to the Flash Crash, a rule which basically banned naked market access. I want to talk briefly about the findings and ask Frank Hatheway, as an academic, to respond. The paper found that quoting activity went down substantially but that market quality improved at the same time with the rate of cost going down by 10%. This suggests that there may be some elements in our market structure today that are somehow leading to less market quality. Frank, would you lead us off?
Justin Schack, Bryan Christian, Colin Clark, Frank Hatheway

Chapter 2. A Global Perspective

Huseyin Erkan and I have been well acquainted, both professionally and personally, for many wonderful and productive years. When we first met each other we were really young guys, and one of us is still young. Guess who? [laughter]. Huseyin was here, participating in this same Baruch conference series, 2 years ago. I asked him back today to speak on his own as our guest. I like his interesting thoughts; I like his ideas; and so I extend a big warm welcome to Huseyin.
Huseyin Erkan

Chapter 3. Integrity of Price Discovery: Perspective of Customers

I want to underline a special fact about our moderator, Ian Domowitz: We are friends from way back. Our friendship started when Ian was an academician. And Ian hasn’t changed that much. He may look spiffier, but he really hasn’t changed that much. Please welcome Ian.
Ian Domowitz, John Donahue, William Lishman, Timothy J. Mahoney, Lin Peng, Adam Sussman

Chapter 4. Integrity of a Marketplace

It is with much enthusiasm that I once again warmly welcome Bob Pisani to Baruch College for our conference today. Bob, it is a pleasure to see you here.
Bob Pisani, Joe Bonocore, Gary Katz, John Kelly, Keith Ross, Oakley E. (Lee) Van Slyke

Chapter 5. A Trader’s Perspective

When Bob Schwartz asked me to speak here today, he provided me this wonderful bully pulpit, along with his permission to choose any topic under the market structure sun. So I thought about what we struggle with most today. Much of that is part of the overall struggle with market structure and the tension that naturally occurs in markets. Somebody earlier this morning said that markets naturally want to come together and that networks want to come together too. That is true.
Andrew M. Brooks

Chapter 6. Integrity of Market Regulation

We have a great divergence of fascinating views on this panel and, I must add, from a variety of organizations in the financial services sector. As you know, the SEC published a Concept Release which is a part of the agency’s review of the existing structure of securities markets. In tandem with this initiative, the SEC raised this question: Is market regulation keeping pace with changes in technology and trading practices? High-frequency trading (HFT) is one of the areas it specifically singled out. The SEC asked for comments on whether high-frequency trading is a problem. And the agency, having identified some problems, asked if a new set of regulatory initiatives is required.
Ken Lehn, Eric Budish, Deanna Dobrowsky, Tom Gira, Eric Swanson, Steve Wunsch

Chapter 7. Invited Editorial Comment: Equity Trading in the Fast Lane—The Staccato Alternative

Competition is good and we want it. (Right on!) Competition keeps prices down, profits in check, and innovation vibrant. (Absolutely!) Competition is fun. (It sure is, if you mean the World Series, Super Bowl, Stanley Cup playoffs, or a kid’s game of musical chairs.) Competition should be our goal, our mantra! Whoa, slow down a millisecond. Now you are carrying this too far, too fast.
Robert A. Schwartz, Liuren Wu
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