Transcript Type title here - Cass Business School

MICEX vs RTS: Battle of Exchanges
Who wins the order flow supremacy?
Discussion by Piotr Korczak, University of Bristol
3rd EMG Workshop on Microstructure of Financial Markets
Cass Business School, London, 1 May 2009
What do the authors do?
• The analysis of price discovery of 7 Russian
stocks listed both on MICEX and RTS
• Reconstruction of the limit order book, application
of standard measures of price discovery across
markets (Hasbrouck, Gonzalo/Granger)
• Main finding
• Majority of price discovery (65-90%) on MICEX
which has 80% of the combined MICEX/RTS
trading volume
General comments
• Important and up-to-date issue of competition
between trading venues (exchanges, trading
platforms)
• Thorough analysis
• … BUT missing blocks
– Other trading venues for the sample stocks
– The effect of the exchange rate
Price discovery and liquidity
• Shares in trading volumes
Source: http://www.nes.ru/~agoriaev/FMI4%20primary%20and%20secondary%20markets.pdf
Price discovery and exchange rate
• MICEX: prices in Roubles
• RTS: prices in US Dollars
• The fixed exchange rate during the day can
distort the picture
• See also, Grammig, Melvin and Schlag (JEF,
2005) on how volatility of the exchange rate
influences the results from the bivariate vs
trivariate price discovery models
Other comments – Primer on MICEX and RTS
• Do we know who trades there?
– Retail investors vs. institutions?
– Foreign vs. domestic investors?
• Does trading in USD and minimum trading lot on
RTS have an impact on who trades there?
• Do we expect investors to operate across the
markets?
– Arbitrage, order splitting?
Other comments - Positioning of the paper
• Strengthen the link with the literature on
alternative domestic trading venues
• Play down the link with the literature on
international cross-listing
– Trading in domestic vs. foreign venues influenced by
information frictions, differences in monitoring,
corporate governance standards, time zone…
Possible extensions
• How microstructure of the domestic market
changes when the foreign market is open
• See, Moulton and Wei (JFM, forthcoming)