SciDAC Poster: INCITE

1
Dynamics of Electronic Markets
J. Siaw, G. Warnecke, P. Jain, C. Kenney, D.
Gershman, R. Riedi, K. Ensor
1
Electronic Markets
4
6
Intraday dynamics
Survival of Orders
Heat Plot of Sell Orders

• Electronic markets (ECNs) are networks that
  enable users to place orders for stocks via the
  internet to a system that executes trades
  automatically (Ex Island, ArcaBook)
• Difference to Traditional markets
• Prices determined by users (no market maker)
• Speed Computers used to place orders as well as
  for Automated Trading
• Research needed the dynamics of ECNs are little
  studied yet make a large share of trades

• Survival Time time between the addition and
  removal of an order from the queue
• Hazard rate - instantaneous probability that the
  order will be traded or cancelled during the next
  instant (before t?t)
• Survival rate - probability an added order will
  survive beyond a certain time
• Competing risks orders may be fully or
  partially traded or cancelled
• Issue of interest mixture of risk and
  complexity of data require new models

• 3 trading periods per day
• Pre-market (7 AM 930 AM)
• Market trading (930 AM 4 PM)
• After hours (4 PM 7 PM)
• Pre-market and after hours trading is very sparse
  Example day
• Pre-market 79 trades
• Market trading 33961 trades
• After hours 4091 trades
• Trading activity correlates with activity on
  order book
• Main period of interest Market trading
• Issue of interest Stationarity

Heat Plot of Sell Orders
Heat Plot of Buy Orders
Spread
5

• price price of last trade (unique to stock)
• Limit Orders queued to be matched or cancelled
• best bid - the highest buy order in the queue
• best ask the lowest sell order in the queue
• spread (best ask) (best bid)
• Highly traded stocks (ex. Microsoft)
• spread usually 0.01 deviates only shortly
• Less traded stocks spread usually larger
• Issues of interest
• absence of market maker shows in 1c-spread
• requires new models

8
Future Work

• Survival analysis
• Competing risk models
• Cox proportional hazard model
• Self-excitation (ACD models)
• Spread
• Correlation
• ARIMA time series
• Self-excitation
• Conditional / Hidden parameter model
• Arbitrage
• Sensitivity to networks