Summary of the Article The Microstructure of Financial Markets Frank_de_Jong,_Barbara_Rindi

The Microstructure of Financial Markets
FRANK DE JONG
BARBARA RINDI



1.1 Trading protocol




- 1.1.1 Order-driven markets

o Auction markets



- 1.1.2 Quote-driven markets
- 1.1.3 Hybrid markets
- 1.1.4 Transparency


1.2 Market Structure

, - 1.2.1 Market structures around the world
- 1.2.2 The market structure of the NYSE
- 1.2.3 The Hybrid Market model




1.3 Orders and order properties
- Example 1: Batch opening and closing auction
- Example 2: Limit order book (LOB)
- Example 3: LOB and excess volatility price ranges




1.1.1 Order-driven markets
o Auction markets


- Auction markets

▪ The prevailing type of market in the leading financial centres at present is the auction.

▪ Auction markets can take two forms:

• call markets or
• continuous auctions.

▪ In call (or batch) auctions, orders are submitted simultaneously, whereas in continuous
auctions agents can submit orders at any time during the trading phase.

▪ In auction markets, there are two basic types of order –

• limit orders and
• market orders.

▪ A limit order specifies both a quantity and a maximum price or minimum price for execution
depending on whether it is a buy or a sell order.

▪ A market order only specifies a quantity and will be executed at the best price available.