Competition for Order Flow and the Theory of Global Games : The Impact of Alternative Trading Systems on Securities Markets (Paperback)

I Introduction.- 1 Motivation.- 2 Objectives and Structure.- II Alternative Trading Systems.- 1 Impact of Technology on the Trading Industry.- 1.1 Access to Financial Markets.- 1.2 Automation of the Trading Process.- 2 Overview of Alternative Trading Systems.- 2.1 Definition of Alternative Trading Systems.- 2.2 Functioning of Alternative Trading Systems.- 2.3 Benefits and Risks of Alternative Trading Systems.- 2.3.1 Benefits.- 2.3.2 Risks.- 3 Alternative Trading Systems in the U.S..- 3.1 Major Players.- 3.2 Regulatory Initiatives.- 3.2.1 Regulatory Basis for the Emergence of Alternative Trading Systems in the U.S..- 3.2.1.1 Order Handling Rules.- 3.2.1.2 Tick Size Reduction.- 3.2.2 Incorporation into Nasdaq Market Structure.- 3.2.3 Current Regulation of Alternative Trading Systems.- 3.2.3.1 Regulation ATS.- 3.2.3.2 Current Developments.- 4 Alternative Trading Systems in Europe.- 4.1 Major Players.- 4.2 Regulatory Environment.- 4.3 Market Potential of Alternative Trading Systems in Europe.- 5 Impact of Alternative Trading Systems on Market Participants.- 5.1 Impact on Traditional Exchanges.- 5.2 Impact on Intermediaries.- 5.3 Impact on Investors.- 6 Future Perspectives and Open Questions.- III Competition for Order Flow in Market Microstructure Theory.- 1 Introduction to Market Microstructure Theory.- 2 Fragmentation versus Consolidation of Liquidity.- 2.1 Liquidity.- 2.1.1 Definition of Liquidity.- 2.1.2 Overview of Research on Liquidity.- 2.2 Fragmentation versus Consolidation.- 2.2.1 Fragmentation versus Consolidation Controversy.- 2.2.2 Overview of Research on Fragmentation versus Consolidation.- 3 Models of Competition for Order Flow.- 3.1 Overview of Theoretical Research on Intermarket Competition.- 3.2 Model of Competition between Identical and Different Markets.- 3.2.1 Model.- 3.2.2 Summary of Results.- 3.3 Model of Competition between Search and Trading with an Intermediary.- 3.3.1 Model.- 3.3.2 Summary of Results.- 3.4 Model of Competition between a Crossing Network and a Dealer Market.- 3.4.1 Model.- 3.4.2 Summary of Results.- 3.5 Other Models of Intermarket Competition.- 4 Summary of Results.- IV Theory of Global Games.- 1 Introduction to Game Theory.- 2 Information and Knowledge.- 2.1 Information and Information Structure.- 2.2 Concept of Common Knowledge.- 2.3 Higher Order Beliefs.- 3 Introduction to the Theory of Global Games.- 3.1 Coordination Games.- 3.1.1 Characterization of Coordination Games.- 3.1.2 Approaches to Equilibrium Selection.- 3.2 Global Games.- 3.2.1 Symmetric Two Person Binary Action Game.- 3.2.2 Symmetric N-Person Binary Action Game.- 3.2.3 Summary of Results.- 3.3 Further Developments.- 4 Applications of the Theory of Global Games.- 4.1 Leading Example.- 4.1.1 Basic Model.- 4.1.2 Incomplete Information Model.- 4.2 Uniqueness of Equilibrium.- 4.2.1 Uniqueness with Uniform Distribution.- 4.2.2 Uniqueness with General Distributions.- 4.2.3 Limit Uniqueness and Noise Independent Selection.- 5 Summary of Results.- V Competition for Order Flow as a Global Game.- 1 Equilibrium Selection in Games of Competition for Order Flow.- 1.1 Framework.- 1.2 Game with Common Knowledge of the Value of Trade.- 1.3 Global Game with Incomplete Information of the Value of Trade.- 1.3.1 Existence of Dominated Strategies.- 1.3.2 Iterated Elimination of Dominated Strategies.- 1.4 Game with Individual Values of Trade.- 1.5 Discussion of Results.- 2 Global Game with Endogenous Dealer Pricing.- 2.1 Competition from a Crossing Network in Different Market Structures.- 2.1.1 Dealers' Pricing Behavior.- 2.1.1.1 Monopolistic Dealer.- 2.1.1.2 Competitive Dealers.- 2.1.2 Comparison of Different Market Structures.- 2.2 Impact of the Introduction of a Crossing Network.- 2.2.1 Dealers' Pricing Behavior without a Crossing Network.- 2.2.1.1 Monopolistic Dealer.- 2.2.1.2 Competitive Dealers.- 2.2.2 Comparison of Markets with and without a Crossing Network.- 2.3 Discussion of Results.- VI Summary of Results and Further Research.- App