BE653 Disruption in the markets 2016 David Norman

How has technology disrupted markets? Market infrastructure design Exchanges, ECN’s and MTF’s Traders and Market makers High Frequency trading (HFT) and Dark Pools Neuroscience and Human-machine Interaction (HCI)

A Timeline in the development of markets 1986/1987 – London ‘Big Bang’ + Crash 1990- Central Limit Order Book 1997 - Regulation ATS 1999 - LIFFE closed 2000 - ISE and ICE –New York and Atlanta 2002 - High Frequency Traders and Market Makers 2005 - Regulation NMS and SEC Rule 610 2006 - Dark Pools and Crossing Networks 2007 - HFT’s on Steroids 2009 - Banking scandals – LIBOR, etc 2010 - May 6th Flash Crash 2012 – August 1st Knight Trading loses $440 Million 2013- Jan 3rd 2013 2015 - Regulators Bite -Ban Cancelled Orders

Where it all began -1986 LSE

The FTSE PIT 1990

Order Execution - First in First Out FIFO definition Central Limit Order Book Scalping Locked Markets and backwardations

The Central Limit Order Book

The Arena

Dark Pools, Crossing Networks and Systematic Internalizers By 2012 the US Equity Market ‘Arena’ had 13 exchanges and 50 Alternative Trading Venues REG NMS tried to link the system together Chaotic with system Outages

Market Outage Jan 3rd 2013 NASDAQ

Inherent Volatility

Paralysis by Analysis

Can we restore a sense of Normality? Who do the markets serve? Who benefit most from the markets? What are the ethical considerations? Where does the human trader fit in?