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Financial Market Monitoring and Surveillance Systems Framework:A Service Systems and Business Intelligence Approach

Diaz Solis, David Alejandro

[Thesis]. Manchester, UK: The University of Manchester; 2012.

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Abstract

The thesis introduces a framework for analysing market monitoring and surveillance systems in order to provide a common foundation for researchers and practitioners to specify, design, implement, compare and evaluate such systems. The proposed framework serves as a reference map for researchers and practitioners to position their work in the context of market monitoring and surveillance, resulting in a useful instrument for the analysis, testing and management of such systems. More specifically, the thesis examines the new requirements for the operation of financial markets, the role of technologies, the recent consultations on the structure and governance of EU and US markets, as well as, future usage scenarios and emerging technologies. It examines the context in which market monitoring and market surveillance systems are currently been used. It reports on their processes, performance, and on the organisational and regulatory environments in which they exist. Furthermore, it develops a set of taxonomies which cover the majority of the concepts of market manipulation, market monitoring, market surveillance, entities, technologies and actors that are relevant for the work in this thesis. Building on the gaps and limitations of the current systems, it proposes a new framework following the Design Science methodology.The usefulness of the framework is evaluated through four critical case studies, which not only help to understand with practical exercises the way how markets monitoring and surveillance systems work, but also to investigate their weaknesses, potential evolution and ways to improve them. For each case study, the thesis develops a fully working prototype tested using a sample prosecution case and evaluated in terms of the appropriateness and suitability of the proposed framework. Finally, implications relating to policies, procedures and future market structures are discussed followed by suggestions for future research.

Additional content not available electronically

the thesis develops a market simulator system that is used to study the behaviour of markets in a high-frequency trading context.

In order to study the effects of quote stuffing, the researcher built a software using Visual Basic for Applications (VBA) that emulates the logic and behaviour of trading systems. In particular, the programme considered the existence of four interconnected markets which receive and process messages for one stock/security originating from investors and other exchanges. The software is able to execute and manage more than 100 different trading rules including four main types of events: messages quotes to buy or sell; cancellation of orders; corrections of orders; and 'new best' messages sent by other exchanges in order to disseminate changes in the order books. The simulations considered that each trading event took a limited amount of time for processing, and, for example, if a new message was received while another message was being processed, the new message was added to a waiting queue. Accordingly, each message was time-stamped four times: the time the order was sent to the exchange, i.e. original time; the time the order was first received by the exchange (or entered the queue), i.e. time of arrival; the time the order was entered for processing (after waiting in the queue or not), i.e. in time; and the time the order was finally completely processed, i.e. out time (see Figure 6 36). As a full market simulator, the software calculated and maintained records for order books for each of the exchanges in the simulation, historic information about best bid and ask prices and quantities, and depth of book until the 4th best position. The software was also able to generate new event messages automatically when certain conditions applied, for example with the intention to fulfil the 'Order Protection Rule'.

Bibliographic metadata

Type of resource:
Content type:
Form of thesis:
Type of submission:
Degree type:
Doctor of Philosophy
Degree programme:
PhD Business Administration
Publication date:
Location:
Manchester, UK
Total pages:
296
Abstract:
The thesis introduces a framework for analysing market monitoring and surveillance systems in order to provide a common foundation for researchers and practitioners to specify, design, implement, compare and evaluate such systems. The proposed framework serves as a reference map for researchers and practitioners to position their work in the context of market monitoring and surveillance, resulting in a useful instrument for the analysis, testing and management of such systems. More specifically, the thesis examines the new requirements for the operation of financial markets, the role of technologies, the recent consultations on the structure and governance of EU and US markets, as well as, future usage scenarios and emerging technologies. It examines the context in which market monitoring and market surveillance systems are currently been used. It reports on their processes, performance, and on the organisational and regulatory environments in which they exist. Furthermore, it develops a set of taxonomies which cover the majority of the concepts of market manipulation, market monitoring, market surveillance, entities, technologies and actors that are relevant for the work in this thesis. Building on the gaps and limitations of the current systems, it proposes a new framework following the Design Science methodology.The usefulness of the framework is evaluated through four critical case studies, which not only help to understand with practical exercises the way how markets monitoring and surveillance systems work, but also to investigate their weaknesses, potential evolution and ways to improve them. For each case study, the thesis develops a fully working prototype tested using a sample prosecution case and evaluated in terms of the appropriateness and suitability of the proposed framework. Finally, implications relating to policies, procedures and future market structures are discussed followed by suggestions for future research.
Additional digital content not deposited electronically:
the thesis develops a market simulator system that is used to study the behaviour of markets in a high-frequency trading context.
Non-digital content not deposited electronically:
In order to study the effects of quote stuffing, the researcher built a software using Visual Basic for Applications (VBA) that emulates the logic and behaviour of trading systems. In particular, the programme considered the existence of four interconnected markets which receive and process messages for one stock/security originating from investors and other exchanges. The software is able to execute and manage more than 100 different trading rules including four main types of events: messages quotes to buy or sell; cancellation of orders; corrections of orders; and 'new best' messages sent by other exchanges in order to disseminate changes in the order books. The simulations considered that each trading event took a limited amount of time for processing, and, for example, if a new message was received while another message was being processed, the new message was added to a waiting queue. Accordingly, each message was time-stamped four times: the time the order was sent to the exchange, i.e. original time; the time the order was first received by the exchange (or entered the queue), i.e. time of arrival; the time the order was entered for processing (after waiting in the queue or not), i.e. in time; and the time the order was finally completely processed, i.e. out time (see Figure 6 36). As a full market simulator, the software calculated and maintained records for order books for each of the exchanges in the simulation, historic information about best bid and ask prices and quantities, and depth of book until the 4th best position. The software was also able to generate new event messages automatically when certain conditions applied, for example with the intention to fulfil the 'Order Protection Rule'.
Thesis main supervisor(s):
Thesis co-supervisor(s):
Language:
en

Institutional metadata

University researcher(s):

Record metadata

Manchester eScholar ID:
uk-ac-man-scw:158442
Created by:
Diaz Solis, David
Created:
2nd April, 2012, 12:55:59
Last modified by:
Diaz Solis, David
Last modified:
22nd April, 2015, 21:10:21

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