Chapter

Equity Markets in Transition

pp 363-390

Date:

High Frequency Trading: Market Structure Matters

  • Reto FrancioniAffiliated withWirtschaftswissenschaftliche Fakultät, University of Basel Email author 
  • , Peter GomberAffiliated withFaculty of Economics and Business Administration, Department of Information Systems, University of Frankfurt

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Abstract

Although both media and the public seem to discuss the perceived dangers and threats of electronic trading only since the US flash crash in 2010, in reality, the shift towards electronic trading has been a long-lasting evolution. Often, the starting point of electronic trading is said to be the year 1971, when the National Association of Securities Dealers Automated Quotation (Nasdaq) became the first electronic stock market displaying quotes for 2500 over-the-counter securities. A significant migration process from over-the-counter and traditional floor trading to fully electronic markets took place on both sides of the Atlantic between the late 1970s and the mid-1990s. Starting from the electronification of major international exchanges, significant technological innovations emerged that successively walked up the value chain and led to a far-reaching automation of trading processes; first at Sell Side institutions and in a next step by their customers, i.e., Buy Side firms.