New Horizons in Money and Finance series
Edited by Luisa Anderloni, David T. Llewellyn and Reinhard H. Schmidt
Chapter 11: Innovation in Trading Activity: Should Stock Markets be More Transparent?
* Caterina Lucarelli, Camilla Mazzoli and Merlin Rothfeld** 1 INTRODUCTION Direct access trading (DAT) represents one of the most important ﬁnancial innovations in the last 20 years related to stock market activity. DAT gives market participants direct access to the stock exchanges, in terms of submissions of orders and, above all, in terms of the amount of information available directly and in real time. These main features make DAT particularly suitable for short-term (or intraday) traders, as their economic results can be strongly linked to the speed of their order execution and to the available real-time information. In fact, DAT platforms give traders the possibility of displaying in their order books information about buying and selling orders (pre-trade transparency: PTT) and about trades (post-trade transparency). In this study we shall focus on PTT and its three main dimensions: (i) the identiﬁcation of the trader who sends the order to the market (level 1 of PTT, or PTT1), (ii) the desegregation of price levels (or PTT2) and (iii) the number of price levels displayed in the order book (or PTT3). From an international perspective, the pre-trade information actually disclosed may diﬀer signiﬁcantly within stock exchanges and this information also depends upon the typology of the traders to which it is disclosed (for example, retail or institutional traders). In fact, the general DAT infrastructure is made up of a chain of interconnections between market authorities and participants (data vendors, institutional traders and retail traders). Nevertheless, each national market shows di...
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