1. As an independent observer, what are your thoughts on the Plato Partnership project and their aims more generally?
Without doubt, the idea behind the Plato Partnership is fantastic: To set up a platform that enables the Buy Side, the Sell Side and academia not to only discuss but to jointly shape the market structure of the future. Being an academic with industry experience, I know that it is not easy to bring customers and competitors together with a spirit of collaboration for the benefit of market structure.
This in itself has tremendous value. From an academic perspective, the Market Innovator (MI3) concept promises and has already delivered a lot of encouraging new ways of industry-academic collaborations: joint conferences, easy accessible and new rich data-sets and last but not least sponsoring of valuable and innovative research projects.
2. What role do you think academia can play in the development of global market structure?
Market Microstructure and Electronic Finance are definitely fields of research that had a tremendous impact on the real-world. The design and structure of our markets clearly benefited from the results of academic research and will benefit in the future. These days, regulators prescribe and shape market structures and market processes more than ever in the past.
They have learned that both evidence-based rule making and thorough regulatory impact assessment are imperative for better regulation. And they are more and more getting into dialogue with academia to understand whether and where academic results help to shape their policy decisions.
Given the fact that Brussels and Paris (the EU Commission and ESMA) are in fact the designers of European markets today and have taken over many of the responsibilities of market operators in this respect, this interaction with academia is extremely valuable for the benefit of our markets.
3. Together with your co-authors Benjamin Clapham and Sven Panz, you received the Best Paper Award of the CEPR-Imperial-Plato Inaugural Market Innovator (MI3) Conference. Can you give us some brief insights on the key results of this paper?
The key research question of our paper is to investigate whether a co-ordination of circuit breakers is necessary in European equity markets. Therefore, we analysed whether we can find volume and volatility spill overs to alternative trading venues during volatility interruptions in DAX30 stocks during a volatility interruption in the main market (in this case: Xetra).
In contrast to existing theoretical research, we did not ﬁnd any evidence for trading volume or volatility spill overs in our empirical analysis. Counter-intuitively, the market share of the main market increases sharply during a circuit breaker and a higher level of market fragmentation even strengthens this shift of market share towards the main market. Market participants seem to withdraw their trading activities if no price signal of the main market is available.
And we also observed that the higher the level of HFT activity, the more trading is concentrated on the main market during the volatility interruption. Consequently, our results provide empirical support that a coordination of circuit breakers among venues imposed by regulators does not seem to be necessary, even against the background of increasing fragmentation in the European trading environment. Markets are implicitly coordinated by the traders themselves who refrain from trading on alternative venues during a circuit breaker on the main market.