Quasi-Centralized Limit Order Books

Journal article

A quasi-centralized limit order book (QCLOB) is a limit order book (LOB) in which financial institutions can only access the trading opportunities offered by counterparties with whom they possess sufficient bilateral credit. We perform an empirical analysis of a recent, high-quality data set from a large electronic trading platform that utilizes QCLOBs to facilitate trade. We find many significant differences between our results and those widely reported for other LOBs. We also uncover a remarkable empirical universality: although the distributions describing order flow and market state vary considerably across days, a simple, linear rescaling causes them to collapse onto a single curve. Motivated by this finding, we propose a semi-parametric model of order flow and market state in a QCLOB on a single trading day. Our model provides similar performance to that of parametric curve-fitting techniques, while being simpler to compute and faster to implement.

Authors: Gould, MD; Porter, M; Howison, S

• Publication date: 2015-02-02
• DOI: 10.2139/ssrn.2558789
• ISSN: 1556-5068
• Keywords: q-fin.TR