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MICEX vs RTS: Battle of Exchanges Who wins the order flow supremacy?

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?.

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MICEX vs RTS: Battle of Exchanges Who wins the order flow supremacy?

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  1. MICEX vs RTS: Battle of ExchangesWho 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

  2. 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

  3. 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

  4. Price discovery and liquidity • Shares in trading volumes Source: http://www.nes.ru/~agoriaev/FMI4%20primary%20and%20secondary%20markets.pdf

  5. 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

  6. 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?

  7. 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…

  8. Possible extensions • How microstructure of the domestic market changes when the foreign market is open • See, Moulton and Wei (JFM, forthcoming)

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