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Newsletter
Controlling risk in a lightning-speed trading environment
A handful of high-frequency trading firms accounted for an estimated 70 percent of overall trading volume on U.S. equities markets in 2009. One firm with such a computerized system traded over 2 billion shares in a single day in October 2008, amounting to over 10 percent of U.S. equities trading volume for the day. What are the advantages and disadvantages of this technology-dependent trading environment, and how are its risks controlled?
Journal Article
Explaining settlement fails
The Federal Reserve now makes available current and historical data on trades in U.S. Treasury and other securities that fail to settle as scheduled. An analysis of the data reveals substantial variation in the frequency of fails over the 1990-2004 period. It also suggests that surges in fails sometimes result from operational disruptions, but often reflect market participants' insufficient incentive to avoid failing.
Report
Are market makers uninformed and passive? Signing trades in the absence of quotes
We develop a new likelihood-based approach to signing trades in the absence of quotes. This approach is equally efficient as the existing Markov-chain Monte Carlo methods, but more than ten times faster. It can address the occurrence of multiple trades at the same time and allows for analysis of settings in which trade times are observed with noise. We apply this method to a high-frequency data set of thirty-year U.S. Treasury futures to investigate the role of the market maker. Most theory characterizes the market maker as an uninformed, passive supplier of liquidity. Our findings suggest, ...