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IIMB’s Centre for Capital Markets & Risk Management hosts lecture on ‘Capital Markets: Trading and Technologies’ on July 14

The talk, led by Dr. Bidisha Chakrabarty, Edward Jones Endowed Professor of Finance at the Chaifetz School of Business, Saint Louis University, focussed on ownership structure of stock exchanges, effect on market quality, trading techniques, impact of trading technologies and more

15 July, 2022, Bengaluru: The Centre for Capital Markets and Risk Management (CCMRM) at IIM Bangalore hosted a lecture by Dr. Bidisha Chakrabarty, Chaifetz School of Business, Saint Louis University (SLU), on ‘Capital Markets: Trading and Technologies’, on July 14 (Thursday), 2022. 

The lecture focussed on ownership structure of stock exchanges and the effect on market quality, impact of trading technologies on investor portfolios and costs and trading techniques of low latency and high frequency trading.  

Dr. Chakrabarty started the session by discussing basics of capital markets trading highlighting the importance of transparency for capital markets. She explained that the structure of modern stock exchanges can be classified as: intermediated/specialized market like the New York Stock Exchange prior to 2007; completely electronic including National Stock Exchange, Nasdaq, and hybrid like the NYSE in its current form. She also presented the research evidence on how the structure of stock exchanges affects market quality, and explained the order sequencing by exchanges in the order of Price-Display and Time. 

While discussing alternative trading systems and dark pools, she said: “As a fact, more than 50% of the trading volume in western markets were in alternative trading systems. This is not considered desirable by the regulators for efficiency of the markets”. She also commented on the Indian counterpart of dark pools, that is, hidden orders. “While NSE requires minimum 10% of order amount to be disclosed during trading, US markets allow completely hidden orders”, she added.

She classified the types of traders, based on how they interact with the limit order book of the exchange, as: Agency Algorithmic Traders, High Frequency Traders and Non-algorithmic Traders.

Discussing the technology of trading, she shared some insights on the low latency and high frequency trading, and the current evidence on how these high-speed trader's trade. She went on to explain how markets makers trade to keep spreads low and liquidity high, thus “leaning against the wind”. She shared an interesting finding confirming how traders are shifting the trading information strategically during the events (crash).

The session concluded that price discovery mechanism is impacted by the trading technologies, types of traders, and structure of the exchanges. “The High Frequency Traders are on a rise in India and the trend is supposed to continue going forward”.

Dr. Chakrabarty’s talk was followed by a Q&A session, during which she said that the benefit of hiding the trades to traders is that sellers would be able to avoid any panic and be able to sell huge lots in the market. She gave example of flash crash to explain importance of hiding the trading orders. “No one had the opportunity to sell due to sudden crash due to entry of an erroneous order.” She also said that the interventions in hybrid form happening at NYSE are quite frequent. “Learners can search limit up and limit down (LULD) to know more about these.”

About the speaker: Dr. Bidisha Chakrabarty is the Edward Jones Endowed Professor of Finance at the Chaifetz School of Business, Saint Louis University (SLU). She has a doctoral degree in Finance from the University at Buffalo (SUNY). She is a research-active scholar with publications in the FT50 list, including the Journal of Accounting and Economics, Management Science, Academy of Management Journal, Journal of Financial and Quantitative Analysis, Review of Accounting Studies, and Contemporary Accounting Research. Dr. Chakrabarty has served as the Senior Editor of the Decision Sciences journal and works with economists at the Securities and Exchange Commission, the Office of Financial Research, the PCAOB (governing body for auditors in the US), and the National Stock Exchange of India. Her research has been recognized with best paper awards from journals and conferences, and grants from multiple stock exchanges. She has also won numerous teaching and alumni awards.