{"title":"The Benefits of Volume-Conditional Order-Crossing","authors":"Dean Phillips Foster, Simon Gervais, K. Ramaswamy","doi":"10.2139/ssrn.924410","DOIUrl":null,"url":null,"abstract":"We assess the role and viability of an order-crossing or market-clearing mechanism that is automatically triggered only when a minimum number of shares can be crossed. Such a mechanism is naturally more attractive to traders who do not require much immediacy for their trades, as liquidity is cheaper in this market than in a continuous-auction market. The volume condition that we propose is crucial to the effectiveness with which this market complements the continuous-auction market in two important ways. First, when appropriately set, the volume condition endogenously adjusts the probability that market-clearing is triggered and so keeps impatient traders and highly informed traders away. Second, because market-clearing with a large volume condition reduces the effects of adverse selection in this market, patient traders are more willing to place orders in it. As we show, these effects often combine into a Pareto-dominating equilibrium when the continuous-auction market and the crossing mechanism with the right volume condition are both open.","PeriodicalId":351720,"journal":{"name":"Wharton School: Finance (Topic)","volume":"27 1","pages":"0"},"PeriodicalIF":0.0000,"publicationDate":"2007-02-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"8","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Wharton School: Finance (Topic)","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.924410","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 8
Abstract
We assess the role and viability of an order-crossing or market-clearing mechanism that is automatically triggered only when a minimum number of shares can be crossed. Such a mechanism is naturally more attractive to traders who do not require much immediacy for their trades, as liquidity is cheaper in this market than in a continuous-auction market. The volume condition that we propose is crucial to the effectiveness with which this market complements the continuous-auction market in two important ways. First, when appropriately set, the volume condition endogenously adjusts the probability that market-clearing is triggered and so keeps impatient traders and highly informed traders away. Second, because market-clearing with a large volume condition reduces the effects of adverse selection in this market, patient traders are more willing to place orders in it. As we show, these effects often combine into a Pareto-dominating equilibrium when the continuous-auction market and the crossing mechanism with the right volume condition are both open.