E-Finance Lab Team

2019

Gomber, P.; Clapham, B.; Lausen, J.; Panz, S. (2019)

The MiFIR Trading Obligation: Impact on Trading Volume and Liquidity in Electronic Trading

In: Lecture Notes in Business Information Processing (LNBIP), Vol. 345, pp. 3-26, Eds.: N. Mehandjiev and B. Saadouni; Springer, Cham

Category: Proceedings [Find it]

Abstract

The new financial market regulation MiFID II / MiFIR will fundamentally change the trading and market infrastructure landscape in Europe. One key aspect is the trading obligation for shares that intends to restrict over-the-counter (OTC) trading to ensure that more trading takes place on regulated trading venues and on platforms of Systematic Internalisers (SIs). In this context, market observers often argue that SIs might have a competitive advantage due to the best execution concept in combination with the possible exemption of SIs from the tick size regime. Applying scenario analysis, we determine the likely migration of OTC trading volume to regulated trading venues and SIs. Based on our data set, covering intraday data including OTC trades as well as order book snapshots of EURO STOXX 50 constituents on major European venues, we investigate how changes in trading volume influence liquidity on lit markets. The results of our scenario analysis indicate that liquidity on lit markets might increase due to additional turnover formerly traded OTC. However, also a negative liquidity effect for lit markets and for the price discovery process is possible because of increased trading via SIs.

Reference No.: 2019-185

2018

Gomber, P.; Clapham, B.; Panz, S. (2018)

Management of Market Price Risks: Regulation and Coordination of Volatility Interruptions in Europe

In: FIRM Yearbook 2018, pp. 167-168; Association for Risk Management and Regulation, Frankfurt

Category: Miscellaneous [Find it]

Reference No.: 2018-190

Gomber, P.; Clapham, B.; Lausen, J.; Panz, S. (2018)

The Impact of MiFID II/MiFIR on European Market Structure: A Survey among Market Experts

In: The Journal of Trading, Vol. 13, No. 2, pp. 35-46

Category: Publications in journals [Find it]

Abstract

This study presents the views of leading financial market experts concerning the impact of MiFID II/MiFIR on the European market structure and the future relative importance of different types of trading venues and over-the-counter (OTC) trading. In an online questionnaire among experts on trading and/or market structure, 111 respondents shared their opinions concerning the impact of the MiFIR trading obligation, dark pool volume caps, the new trading venue category organized trading facility (OTF) for non-equities, and the impact of Brexit.

Reference No.: 2018-186

Clapham, B.; Gomber, P.; Lausen, J.; Panz, S. (2018)

Enhancing Market Liquidity through Liquidity Provider Incentives

In: EFL Quarterly, 1/2018; Frankfurt am Main

Category: Miscellaneous [Find it]

Reference No.: 2018-5

2017

Panz, S. (2017)

Intra- and Inter-Market Spillover Effects during Extraordinary Market Conditions

In: Working Paper; presented at the 5th Paris Financial Management Conference (PFMC 2017); Paris, France and the 2018 Annual Meeting of the Financial Management Association; San Diego, California, United States

Category: Working papers

Reference No.: 2017-179

Clapham, B.; Gomber, P.; Lausen, J.; Panz, S. (2017)

Liquidity Provider Incentives in Fragmented Securities Markets

In: Working Paper; presented at the 24th Annual Meeting of the German Finance Association (DGF 2017), the 5th Paris Financial Management Conference (PFMC 2017), and the 21st Annual Conference of the Swiss Society for Financial Market Research (SGF 2018)

Category: Working papers [Find it]

Abstract

We study the introduction of single-market liquidity provider incentives in fragmented securities markets. Specifically, we analyze the Xetra Liquidity Provider Program at Deutsche Boerse from two perspectives: First, we investigate whether fee-rebates for liquidity providers enhance liquidity on the specific venue thereby increasing its competitiveness and market share. Second, we analyze whether single-market liquidity provider incentives increase overall market liquidity available for market participants in a fragmented market. For this purpose, we consolidate high-frequency order book information of the most relevant lit venues and measure the specific liquidity contribution of individual markets to the aggregate liquidity in the fragmented market environment. Our empirical results show that single-market liquidity provider incentives in fragmented markets result in increased liquidity on the respective market, a higher contribution of that market to consolidated liquidity and gains in market share in terms of trading volume. However, we find no significant effect for turnover and liquidity of the fragmented market as a whole but a redistribution to the venue offering the incentives.

Reference No.: 2017-149

Clapham, B.; Gomber, P.; Panz, S. (2017)

Coordination of Circuit Breakers? Volume Migration and Volatility Spillover in Fragmented Markets

In: Working Paper; presented at the CEPR-Imperial-Plato Inaugural Market Innovator (MI3) Conference; London, UK, the 24th Annual Meeting of the German Finance Association (DGF 2017); Ulm, Germany and the SFA 2017; Key West, Florida, United States

Category: Working papers [Find it]

Abstract

We study circuit breakers in a fragmented, multi-market environment and investigate whether a coordination of circuit breakers is necessary to ensure their effectiveness. In doing so, we analyze 2,337 volatility interruptions on Deutsche Boerse and research whether a volume migration and an accompanying volatility spillover to alternative venues that continue trading can be observed. Different to prevailing theoretical rationale, trading volume on alternative venues significantly decreases during circuit breakers on the main market and we do not find any evidence for volatility spillover. Moreover, we show that the market share of the main market increases sharply during a circuit breaker. Surprisingly, this is amplified with increasing levels of fragmentation. We identify high-frequency trading as a major reason for the vanishing trading activity on the alternative venues and give empirical evidence that a coordination of circuit breakers is not essential for their effectiveness as long as market participants shift to the dominant venue during market stress.

Reference No.: 2017-134

Clapham, B.; Gomber, P.; Haferkorn, M.; Panz, S. (2017)

Managing Excess Volatility: Design and Effectiveness of Circuit Breakers

In: Working Paper; presented at the 34th International Conference of the French Finance Association (AFFI 2017); Valence, France and the Southern Finance Association 2017 Annual Meetings (SFA 2017); Key West, Florida, United States

Category: Working papers [Find it]

Abstract

We investigate different designs of circuit breakers implemented on European trading venues and examine their effectiveness to manage excess volatility and to preserve liquidity. Specifically, we empirically analyze volatility and liquidity around volatility interruptions implemented on the German and Spanish stock market which differ regarding specific design parameters. We find that volatility interruptions in general significantly decrease volatility in the post interruption phase. Unfortunately, this decrease in volatility comes at the cost of decreased liquidity. Regarding design parameters, we find tighter price ranges and shorter durations to support volatility interruptions in achieving their goals.

Reference No.: 2017-117

Escobar, M.; Mahlstedt, M.; Panz, S.; Zagst, R. (2017)

Vulnerable Exotic Derivatives

In: The Journal of Derivatives, Vol. 24, No. 3, pp. 84-102

Category: Publications in scientific journals [Find it]

Abstract

In this article, we study the impact of unilateral and bilateral counterparty risk on exotic derivatives. The default risk of a counterparty on over-the-counter transactions has gained relevance worldwide, particularly after the subprime and financial crisis with the default of Lehman Brothers. Since the early work of Black and Cox [1976], the default risk of a corporation is known to be representable as a barrier-type product with a sound financial footing involving assets and liabilities. Here, we present closed-form mathematical solutions for exotic products in the framework of n assets under unilateral and bilateral counterparty risks, such as vulnerable barrier options, vulnerable spread options, and defaultable swaps. The findings show that, in realistic situations, price changes could be up to 20%, owing to unilateral and/or bilateral risks on exotic products.

Reference No.: 2017-103

Glaser, F.; Panz, S. (2017)

Cyclicality of Collateral Haircuts and Systemic Illiquidity

In: EFL Quarterly, 1/2017; Frankfurt am Main

Category: Miscellaneous [Find it]

Reference No.: 2017-98

Gomber, P.; Clapham, B.; Haferkorn, M.; Panz, S.; Jentsch, P. (2017)

Ensuring Market Integrity and Stability: Circuit Breakers on International Trading Venues

In: The Journal of Trading, Vol. 12, No. 1, pp. 42-54

Category: Publications in journals [Find it]

Abstract

Circuit breakers are important mechanisms used to prevent excess short-term volatility and to ensure price continuity. This article presents the results of an international survey on the design and application of circuit breakers on trading venues worldwide. The majority (86%) of the responding trading venues apply circuit breakers and thereby aim to ensure investor protection and increase market integrity and stability. On cash markets, market-wide trading halts and volatility interruptions are the most prevalent types of circuit breakers (72%). On derivatives markets, most exchanges coordinate their circuit breaker with their cash market (40%), followed by marketwide trading halts (20%) and volatility interruptions (13%). Most circuit breakers do not differentiate between upward and downward market movements. There is also support for greater coordination of circuit breakers across venues, and a few exchanges (32%) already coordinate their circuit breakers with other venues.

Reference No.: 2017-95

2016

Glaser, F.; Panz, S. (2016)

(Pro?)-Cyclicality of Collateral Haircuts and Systemic Illiquidity

In: European Systemic Risk Board (ESRB) Working Paper Series, No 27 / October 2016; presented at DGF 2016; Bonn, Germany and FMA Europe 2017; Lisbon, Portugal

Category: Working papers [Find it]

Abstract

Procyclicality of collateral haircuts and margins has become a widely proclaimed behavior and is currently discussed not only by academic literature but also by regulatory authorities in Europe. Procyclicality of haircuts is assumed to be a trigger of liquidity spirals due to its tightening effect of collateral portfolio values in times of market distress. However, empirical evidence on this topic is quite sparse and the discussions are primarily driven by insights derived from theoretical models. Nonetheless, oversight bodies are discussing macroprudential haircut add-ons in order to curb with the potential effects of procyclicality in distressed periods. Based on a unique data set provided by a large European Central Counterparty we construct a measure of systemic illiquidity of bond collaterals and analyze the relationship between haircuts, the development of periods with explosive behavior and systemic illiquidity. We estimate the noise of bond yields to measure systemic illiquidity with and without considering haircuts. We then apply an explosive roots bubble detection technique to identify irrational periods of each of these two time series and to a combination of both. Finally, we propose a quantitative trigger and design for macroprudential haircut add-ons. Our results confirm that (1) bond collateral markets face irrational, i.e. bubble-like illiquidity during periods of systemic distress. The results indicate that (2) haircuts are not amplifying or increasing with systemic illiquidity. (3) The proposed haircut add-on mechanism exhibits desirable features to mitigate systemic illiquidity during lasting periods of distress.

Reference No.: 2016-93

Panz, S.; Wolters, G. (2016)

Traditional Life Insurance Products are Under Pressure

In: Non-traditional Life Insurance Products with Guarantees, Eds.: T. Kalberer and K. Ravindran; Risk Books, London

Category: Chapter in book [Find it]

Reference No.: 2016-90

Escobar, M.; Panz, S. (2016)

A Note on the Impact of Parameter Uncertainty on Barrier Derivatives

In: Risks, Vol. 4, No. 4, 35

Category: Publications in scientific journals [Find it]

Abstract

This paper presents a comprehensive extension of pricing two-dimensional derivatives depending on two barrier constraints. We assume randomness on the covariance matrix as a way of generalizing. We analyse common barrier derivatives, enabling us to study parameter uncertainty and the risk related to the estimation procedure (estimation risk). In particular, we use the distribution of empirical parameters from IBM and EURO STOXX50. The evidence suggests that estimation risk should not be neglected in the context of multidimensional barrier derivatives, as it could cause price differences of up to 70%.

Reference No.: 2016-88

Gomber, P.; Clapham, B.; Haferkorn, M.; Panz, S.; Jentsch, P. (2016)

Circuit Breakers - A Survey among International Trading Venues

In: WFE Research Studies & Reports

Category: Miscellaneous [Find it]

Abstract

Between April and June 2016, the Chair of e-Finance and the World Federation of Exchanges (WFE) conducted an international survey on market safeguards (so-called circuit breakers). In total, 44 of the 72 contacted trading venues answered the questionnaire resulting in a response rate of about 61%. Among the participants are well-known exchanges such as Deutsche Boerse, New York Stock Exchange, Nasdaq and the Chicago Mercantile Exchange. The results show that 38 of 44 exchanges already implemented circuit breakers. Compared to an earlier WFE-survey from 2008, the proportion of exchanges which use circuit breakers increased from 60% to 86%. By analyzing the different types of circuit breakers, it can be observed that market-wide trading interruptions (complete suspension of trading) and volatility interruptions (interruption of continuous trading by a call auction) are most widely used. Exchanges were also asked about the coordination of circuit breakers among several trading venues. In this context, 69% of the answering exchanges support a stronger coordination, however, only 32% already coordinate their circuit breakers.

Reference No.: 2016-86

2015

Drasch, B.; Huber, J.; Panz, S.; Probst, F. (2015)

Detecting Online Firestorms in Social Media

In: Proceedings of the International Conference on Information Systems (ICIS 2015); Fort Worth, Texas, USA

Category: Proceedings [Find it]

Reference No.: 2015-106