Research and Analysis - Market Structure

June 26, 2024

Data Highlights

  • Corporate Stock Trading Volume, Spreads and Depth Before, During and After the NYSE Trading Suspension on July 8, 2015 | January 28, 2016

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    NYSE suspended trading in all symbols on the exchange at 11:32 am on July 8, 2015, and reopened at 3:10 pm - a suspension of trading for 3 hours and 38 minutes. This Data Highlight is an analysis of trading before, during and after the NYSE trading suspension.
  • Order Book Reporting Methods and Their Impact on Some Market Activity Measures | March 20, 2014

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    This Data Highlight explores the impact of different order book reporting mechanisms on the interpretation of three common market activity measures: cancel-to-trade ratio, odd lot trade ratio and odd lot volume ratio. To account for the disparate nature of the feeds, we have made some modifications to a number of the exchange-specific metrics published on the Market Structure Analytics web site. Details of these changes are also in the Market Activity Methodology document.
  • Equity Market Speed Relative to Order Placement | March 20, 2014

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    This Data Highlight extends the analysis of corporate stock quote lifetimes first examined in Data Highlight 2013-05, The Speed of the Equity Markets, by parsing orders by their placement relative to the prevailing best bid and offer.
  • Odd Lot Rates in a Post-Transparency World | January 9, 2014

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    This Data Highlight explores the extent to which the level of odd lot trade executions in equities may have changed as a result of such trades now being required to be reported to the public consolidated tapes.
  • The Speed of the Equity Markets | October 9, 2013

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    Comparing the distribution of canceled quote lifetimes to those that result in trade executions helps reveal the extent to which the markets are dominated by individual quotes that are canceled so fast that they cannot be accessed. The data show that the vast majority of individual quotes can be accessed by at least some market participants before they are canceled.
  • Quote Lifetime Distributions | October 9, 2013

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    An accurate assessment of quote lifetimes measures the speed of markets and how it may change in response to new products, technologies, market practices or regulations. Patterns may shed light on algorithmic trading and how algorithms interact with each other. The data suggest that there are at least some market participants that use algorithms that operate at pre-defined periodic rates, and not just in response to rapid changes in market conditions.
  • Odd Lot Rates | October 9, 2013

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    Transactions of fewer than 100 shares are not (at present) reported to the consolidated tape. As a result, the percentage of these trades-the odd lot rate-is one measure of the extent to which potential price discovery transactions go unutilized. The data show that a significant percentage of trades in both corporate stocks and ETPs are executed in odd lots.
  • Hidden Volume Ratios | October 9, 2013

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    A significant percentage of trading takes place off-exchange in venues that are less than fully transparent. Measuring the number and volume of on-exchange trades that are executed against "hidden orders" sheds light on the use of these less than fully-transparent order types by exchange-based market participants.
  • Trade to Order Volume Ratios | October 9, 2013

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    The trade-to-order volume ratio measures the extent to which exchange orders are either canceled or filled. The data show that the current trade-to-order volume ratio for corporate stocks is more than ten times higher than the ratio for ETPs. As the marketplace evolves, variations in the ratios of stocks and ETPs may measure the impact of new products, developing technologies and regulatory changes.

Reports on Security-Based Swaps

White Papers

  • Staff Report on Algorithmic Trading in U.S. Capital Markets
    White Paper (pdf, 860 kb), August 5, 2020
  • Study of Correlation Impact on Credit Default Swap Margin using a GARCH-DCC-copula Framework
    Research Note (pdf, 1 mb), November 13, 2019
  • Does the Tick Size Affect Stock Prices? Evidence from the Tick Size Pilot Announcement of the Test Groups and the Control Group
    White Paper (pdf, 239 kb), November 9, 2018

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    The Tick Size Pilot ("Pilot") increased the tick size from $0.01 to $0.05 for certain small capitalization stocks randomly assigned to three Test Groups. We find that the announcement of the assignment of stocks to the Test Groups and the Control Group did not generate significant abnormal returns for stocks in the Test Groups, neither in absolute terms nor relative to stocks in the Control Group. These results hold even when we limit the analysis to stocks with pre-Pilot quoted spreads smaller than $0.05. Our findings suggest that the market did not expect the Pilot to affect stock prices of companies in the Test Groups. Under the standard assumption that the market's expectations about the effects of the Pilot were correct, this result indicates that the increase in tick size associated with the Pilot had no impact on stock prices. Thus, from a policy perspective, our findings cast doubt on the idea that similar changes in tick size can affect cost of capital of small capitalization companies. In particular, our findings are inconsistent with the view that the increase in tick size harmed companies in the Test Groups because reduced liquidity of their stocks led to lower investor demand and lower stock prices. At the same time, our findings are also inconsistent with the view that the increase in tick size benefited companies in the Test Groups because stronger incentives of market makers to promote their stocks led to higher investor demand and higher stock prices.
  • Empirical Analysis of Liquidity Demographics and Market Quality For Thinly-Traded NMS Stocks
    Research Note (pdf, 3.8 mb), April 2018
  • Tick Size Pilot Plan and Market Quality
    White Paper (pdf, 1.1 mb), January 2018

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    This paper examines the effects of the Tick Size Pilot Plan on average stock market quality. We compare changes in market quality, as measured by spreads, quoted depth, trading volume, volatility, and price efficiency, between the Test and Control Groups. Overall, we find that on average, relative to stocks in the Control Group, market quality deteriorates for stocks in the Test Groups. Our evidence suggests that these findings are mainly driven by the widening of quoting increments as opposed to imposing a trading increment or a trade-at rule, as we only find a few significant differences between the different Test Groups (e.g. the Test Group subject to the trade-at rule).
  • An application of agent-based modeling to market structure policy: the case of the U.S. Tick Size Pilot Program and market maker profitability
    White Paper (pdf, 1.9 mb), December 2017
  • "Limit Up-Limit Down" Pilot Plan and Extraordinary Transitory Volatility
    White Paper (pdf, 1.1 mb), December 2017

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    This paper examines how mechanisms within the Limit Up-Limit Down (LULD) Plan affect extraordinary transitory volatility (as measured by large, short-term trade-price reversals). The paper finds that large price reversals occurred less frequently under the LULD Plan than during a time period when there were no market-wide individual security price limits or circuit breakers (the time before single-stock circuit breakers, SSCBs, went into effect). The paper also compares the LULD mechanisms to the SSCB mechanisms and finds some evidence that is consistent with the LULD mechanisms reducing extraordinary transitory volatility relative to the SSCB mechanisms. However, the results vary depending on the specific methodology employed.
  • The Effect of Amendment 10 of the "Limit Up-Limit Down" Pilot Plan
    White Paper (pdf, 131 kb), December 2017

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    This paper analyzes the effect of Amendment 10 to the Limit Up-Limit Down (LULD) Plan on trading pauses. To reduce the number of unnecessary trading pauses, the Amendment changed the determination of a security's first reference price when the security does not trade in an opening auction. The paper finds that the frequency of trading pauses decreased by more than 75% after Amendment 10 went into effect. The decrease in the frequency of trading pauses was largest for Tier 2 securities, relative to Tier 1 securities (the latter generally have a larger market capitalization), and also larger in the first 30 minutes after the opening of the trading day.
  • "Limit Up-Limit Down" Pilot Plan and Associated Events
    White Paper (pdf, 1 mb), March 2017

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    This paper describes the operation of the Limit Up-Limit Down (LULD) Plan, which replaced the single-stock circuit breakers (SSCBs). The Plan was first implemented only in larger, more liquid securities (Tier 1), and later in all other NMS securities (Tier 2). The paper finds a large number of Limit States, Straddle States, and Trading Pauses in Tier 2 securities. Compared to SSCB, LULD is associated with no reduction in clearly erroneous trades (as captured by canceled trades), an increase in the frequency of Trading Pauses for Tier 2 securities, and a reduction in Trading Pauses for Tier 1 securities.
  • The Determinants of ETF Trading Pauses on August 24th, 2015
    White Paper (pdf, 672 kb), March 2016

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    This paper analyzes the causes of extreme price volatility that triggered limit up-limit down (LULD) trading pauses in many exchange traded funds (ETFs) on August 24th, 2015. We find that LULD pauses in ETFs resulted from both a spike in trading volume and a pullback in liquidity supply. Furthermore, we find that an ETF's correlation with the S&P 500 index was a strong and significant predictor of LULD pauses and that an ETF's turnover (average daily share volume/shares outstanding) was negatively related to LULD pauses. Finally, to demonstrate the explanatory power of these factors, we show that volume spikes, liquidity drops, S&P 500 correlations, and turnover performed very well at separating otherwise similar ETFs into those that paused and those that did not.
  • Equity Market Volatility on August 24, 2015
    Research Note (pdf, 9.1 mb), December 2015

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    Research on the August 24 event provides analysis of a variety of matters, including the extreme price volatility experienced by some ETPs and corporate stocks, the opening and reopening processes at primary listing exchanges, the Limit Up-Limit Down Plan and related exchange practices, and market-wide circuit breakers. The research is intended to help inform a public assessment of the operation of the U.S. equity markets under stressed conditions.
  • A characterization of market quality for small capitalization US equities
    White Paper (pdf, 656 kb), September 24, 2014

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    This paper characterizes some aspects of market quality for small and mid capitalization stocks during 2013. First, it tabulates some widely-used summary market quality measures such as quoted and effective spreads and trading volume. Then it describes the aggregate displayed depth of the limit order book for these stocks. Appendix
  • High Frequency Trading
    Literature Review (pdf, 275 kb), March 18, 2014

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    A staff review of current working papers and published research pertaining to high frequency trading ("HFT"). Addresses definitions and factual characteristics of HFT, as well as the relation between HFT and market quality. Includes a variety of questions about the studies, such as the nature and relevance of the results to the staff's evaluation of policy issues.
  • Over-the-Counter Trading: Description of Non-Alternative Trading System OTC Trading in National Market System Stocks
    White Paper (pdf, 588 kb), March 2014

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    This paper provides general information on non-ATS over-the-counter (OTC) trading of NMS stocks. Press articles and academic research dealing with OTC trading tend to focus on ATSs rather than the larger share of off-exchange trading that occurs outside of ATSs This study provides general information on non-ATS OTC trading of NMS stocks and reveals a number of stylized facts. I estimate that 16.99% of NMS dollar volume (18.75% of share volume) executes OTC without the involvement of an ATS. I estimate my subsample of Retail OTC MMs execute 37.23% of this dollar volume (39.93% of share volume). During my sample week, 255 broker-dealers report non-ATS OTC trading activity.
  • Market Fragmentation
    Literature Review (pdf, 144 kb), October 7, 2013

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    A staff review of current working papers and published research pertaining to the impact of market fragmentation - both visible and dark - on market quality. Includes a variety of questions about the studies, such as the nature and relevance of the results to the staff's evaluation of policy issues.
  • Alternative Trading Systems: Description of ATS Trading in National Market System Stocks
    White Paper (pdf, 486 kb), October 2013 (revised March 2014)

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    This paper is the first in a series of Division of Economic and Risk Analysis (DERA) staff white papers planned to analyze off-exchange trading of NMS stocks. Trading on Alternative Trading Systems (ATSs) regularly comprises 10-15% of U.S. equity trading volume. However, academic and public understanding of ATSs lags that of traditional exchanges partially due to a lack of publicly available data on ATSs. Using a five-day sample of regulatory data from May 7-11, 2012, this paper discusses summary statistics on ATS participation in the trading of National Market System (NMS) stocks, including common stocks and many exchange-traded products (ETPs).

    March 2014 Revision: addition of tabular data appendix

Additional white papers, economic analyses and working papers are available on the DERA website.

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Last Reviewed or Updated: June 28, 2024