Microstructure of trading systems and exchange rate stability

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Sam begs the question, whether the use of market structures that are narrower spreads in the domestic foreign exchange market? Spreads in the market dealers narrower than the automatic electronic market, and the market experts - narrower than market dealers. In order to stabilize the exchange rate makes sense to organize the auction, where dealers are competing with each other. Rules of engagement for the purchase and sale of foreign currency on the MICEX provide for the introduction of the category of market makers, traders on foreign currency, have additional rights and obligations for liquidity trading. However, this possibility remains unrealized. Since March 2002, the MICEX began to work the system for electronic dealing operations (spread), which combines the advantages of technology exchange and OTC currency markets. In my opinion, if there is sufficient trading volume comparable to SELT, it will allow for greater exchange rate stability in comparison with a system of automatic trading.

Impact of transparency on the nature of trading

As follows from the information models of market microstructure, the information available to players in the course of trading, influence the strategies of traders. In other words, the market equilibrium depends on the degree of transparency of the market, ie the ability of traders to observe the process and results of trade. Due to the fact that transparency has an impact on trading, many regulators supervise the procedure of disclosure about transactions. The most common symptom of a transparent market is the availability of an ordinary bidders registration information from the book of orders or the queue of applications. In many markets the information contained in the books of specialists, were not disclosed, but experts may at its sole discretion to allow some traders to look at their records. Electronic trading systems, in contrast, always disclose information about the queue of applications. The availability of these data is only one aspect of market transparency. The degree of transparency can also vary depending on the detail of the data on the operations of traders and timeliness of information.

In some markets, such as dealers, is available only preliminary information. Traders can watch only quotes (pre-trade information), and the data on transactions (post-trade information) of their reach. In other markets, traders get together with preliminary information also posttorgovye data, ie information on transaction prices and trading volumes. At the other end of the spectrum are indicative OTC system that does not provide any reliable data on quotations or transactions.

MICEX currency market has a high level of transparency in the anonymity of trading. Trader trading in the SELT and their follow-up is provided with various information, from order execution stage and ending the transaction.

As far as transparency is beneficial trades? If you follow the traditions of classical economic school, suggesting that economic agents act very rationally, treating all the available information, the transparency increases the efficiency of the market mechanism. However, the creator of the concept of an efficient market, a University of Chicago professor G. Roberts, has determined that the financial market is efficient in a slight degree. Empirical studies of the currency market showed that the hypothesis of rational expectations, at least in its canonical version unbiased generally rejected in the medium and long term. In a short-term expectations approach can be described as rational, but with signs of "the effect of the craze." Econometric analysis of the domestic currency market revealed that a one-day period of time traders tend to "herd" behavior, and weekly and monthly time horizons are characterized by rather adaptive than rational expectations.