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Comment on SEC Reg NMS: The Trade-Through Rule The College Retirement Equities Fund (.CREF.), together with its companion organization Teachers Insurance and Annuity Association of America (collectively, .TIAACREF.), is pleased to submit comments to the Securities and Exchange Commission on the reproposed rules under Regulation NMS.
Equity Market Microstructure: Taking Stock of What We Know For over three decades, microstructure literature has grown and trading systems around the world have been reengineered into modern electronic platforms. This paper considers these developments, concentrating on microstructure issues that are germane to equity market architecture, and focusing on the design of one trading facility, Deutsche Börse's Xetra. Market Sidedness: Insights into Motives for Trade Initiaion We infer motives for trade initiation from market sidedness. We define trading as more two-sided (one-sided) if the correlation between the numbers of buyer- and seller-initiated trades increases (decreases), and assess changes in sidedness (relative to a control sample) around events likely to identify trade initiators. Consistent with asymmetric information, trading is more one-sided prior to merger news. Consistent with belief heterogeneity, trading is more two-sided before earnings and macro announcements with greater dispersions of analyst forecasts, and after news events with larger announcement surprises. A simultaneous equation system is used to examine the co-determinacy of sidedness, the bid-ask spread, volatility, the number of trades and the order imbalance.
Investors who possess the same information and interpret it differently are said to have divergent (as distinct from) homogeneous expectations. Financial economists have widely frowned on the divergent expectations assumption. Nevertheless, this assumption describes reality and is critically important. It paves the way to understanding price and quantity discovery as major functions of a marketplace, and it goes to the heart of an important question – what drives trading and why does market structure matter? Many issues concerning market structure and market structure regulation should be analyzed in a divergent expectations context. This paper considers what is involved in terms of market participants and public policy.
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