Microstructure of trading systems and exchange rate stability


In August, the MICEX has summed up the contest of scientific works on "Problems of the currency market, the role of the universal currency and stock exchanges to establish the regime of monetary stability" and "Problems of regional securities market." The contest received 37 contributions by young professionals and academic institutions from 19 cities of Russia, from St. Petersburg to Vladivostok. Among the winners of the MICEX - a regular contributor to "BC" Sergei Moiseyev. His work in the short form, we introduce you to the "BC".

A few words about the theory

It is well known that in periods of instability center of financial activity moved to the OTC on the stock market. Counterparty limits close to each other and are moving their operations to the organized market, the risk is much lower. Through exchanges state provides stability of the national currency, as exchange provides regulators to effectively manage the exchange rate through market methods.

In Russia, the foreign exchange market as the macroeconomic and financial terms has a greater significance than many other financial markets such as the stock market. Due to the fact that Forex trading is concentrated on the MICEX, a special place to ensure currency stability occupy specific exchange trading and microstructure of the organized market. Depending on what kind of trading techniques used are different volatility, the spread, etc.

Analysis of stock trading is an integral part of the theory of market microstructure (market microstructure theory). It is a branch of microeconomic theory that considers markets abstract financial assets. Theory of market microstructure studies the functioning of financial markets and institutions from the standpoint of trade mechanism of the market, the behavior of economic agents and their performance. President of the American Finance Association and one of the main developers of the theory of M. O'Hara determines the microstructure as "the process and the results of asset trading by certain rules." Analysis of what is happening in the financial markets through the theory of market microstructure reveals determinants of exchange rate, price volatility, market liquidity and its relationship to other financial markets. Thus the theory can be invaluable for regulators to improve the efficiency and stability of the financial system.

The aim of this work - the specifics of the exchange's pricing characteristics of the market organization and the issue of transparency of trading in order to determine how the microstructure of the trading system will improve the stability of the domestic currency market.

Most of the scientific work on market microstructure devoted securities market. Bias towards the stock market has become particularly evident after the 1987 crash. However, in the 1990s, research interest has shifted to the foreign exchange market. To light a microstructure approach to exchange rates (microstructure approach to exchange rate), which can be considered the ancestor of R. Lyons, Professor, University of California (Berkeley).