Abstract
The computerization of financial trading has evolved differently than experts have forecast. Tremendous progress in order processing speeds and new algorithmic tools have driven market volumes well beyond projections. At the same time, expensive, high-profile technology developments have failed, and legacy practices based on intermediated floor and telephone trading have proven resilient. Based on 20 years of research on trading and market systems, this article identifies the regularities among the IT developments that have succeeded, and contrasts them with those trading technologies that have failed. We find market participants adopt new market systems when they offer advantages: (1) in openness and transparency, (2) in meeting a real need of traders, (3) in lowering cost, and (4) in retaining simplicity and ease-of-use. Examples from a number of equity and financial market technology initiatives are described. We conclude with a three-part framework for analyzing the prospects of new market systems.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Early electronic market models
Black, F.: Toward a Fully Automated Exchange. Financial Analysts Journal, 29–44 and 25–29 (July-August and November-December, 1971)
Clemons, E., Weber, B.: London’s Big Bang: A Case Study of Information Technology, Competitive Impact, and Organizational Change. Journal of Management Information Systems 6(4), 41–60 (1990)
Cohen, K., Maier, S., Schwartz, R., Whitcomb, D.: The Microstructure of Securities Markets. Prentice-Hall, Englewood Cliffs (1986)
Hamilton, J.: Electronic Market Linkages and the Distribution of Order Flow: The Case of Off-Board Trading of NYSE-listed Stocks. In: Lucas Jr, H., Schwartz, R. (eds.) The Challenge of Information Technology for the Securities Markets: Liquidity, Volatility, and Global Trading, Dow Jones-Irwin (1989)
Mendelson, M.: From Automated Quotes to Automated Trading: Restructuring the Stock Market in the U.S., New York University Bulletins Nos, pp. 80–82 (1972)
Peake, J., Mendelson, M., Williams Jr, R.: Toward a Modern Exchange: The Peake-Mendelson-Williams Proposal for an Electronically Assisted Auction Market. In: Bloch, E., Schwartz, R. (eds.) Impending Changes for Securities Markets – What Role for Exchanges?, JAI Press (1979)
Analysis of Market Quality with Trading Technology
Clemons, E., Weber, B.: Information Technology and Screen-Based Securities Trading: Pricing the Stock and Pricing the Trade. Management Science 43(12), 1693–1708 (1997)
Cohen, K., Conroy, R., Maier, S.: Order Flow and the Quality of the Market. In: Amihud, Y., Ho, T., Schwartz, R. (eds.) Market Making and the Changing Structure of the Securities Industry, Lexington Books, pp. 93–109 (1985)
Domowitz, I., Steil, B.: Automation, Trading Costs, and the Structure of the Securities Trading Industry. Working Paper, Royal Institute of International Affairs, London, UK (February 1998)
Garbade, K., Silber, W.: Technology, Communication and the Performance of Financial Markets: 1840-1975. Journal of Finance 33(3), 819–831 (1978)
Pagano, M., Steil, B.: Equity Trading I: The Evolution of European Trading Systems. In: Steil, B. (ed.) The European Equity Markets: The State of the Union and an Agenda for the Millennium. European Capital Markets Institute and the Royal Institute of International Affairs, London (1996)
Schwartz, R., Francioni, R., Weber, B.: The Equity Trader Course. John Wiley & Sons, Chichester (2006)
Weber, B.: Adoption of electronic trading at the International Securities Exchange. Decision Support Systems 41(4), 728–746 (2006)
Author information
Authors and Affiliations
Editor information
Rights and permissions
Copyright information
© 2008 Springer-Verlag Berlin Heidelberg
About this paper
Cite this paper
Weber, B.W. (2008). Technology for Trading: What Works and What Fails. In: Veit, D.J., Kundisch, D., Weitzel, T., Weinhardt, C., Rabhi, F.A., Rajola, F. (eds) Enterprise Applications and Services in the Finance Industry. FinanceCom 2007. Lecture Notes in Business Information Processing, vol 4. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-78550-7_12
Download citation
DOI: https://doi.org/10.1007/978-3-540-78550-7_12
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-540-78549-1
Online ISBN: 978-3-540-78550-7
eBook Packages: Computer ScienceComputer Science (R0)