Journal of Business Thought

Open Access Open Access  Restricted Access Subscription Access

The Role of Precision Timing in Stock Market Price Discovery when Trading through Distributed Ledgers


Affiliations
1 Strathclyde Business School, Strathclyde University, 199 Cathederal Street, Glasgow G40QU, Scotland, United Kingdom
 

This paper investigates the importance of “time of execution” and the relevance of “precision time” in order driven transactions done over distributed ledgers. We created a distributed market place using stock market price data from the Toronto Stock Exchange (TMX). We then proceeded to test and measure the impact of timing of orders at the nanosecond level. Whilst price discovery in order driven markets is done instantaneously, with distributed markets, it is necessary to know which order to process first to avoid “front-running”. We argue that a protocol for the time of order of receipt and execution should be subject to nanosecond stacking. Our approach incorporates both transitory and permanent price discovery components. It allows for the efficient processing of transactions and the order that are received by a market clearing distributed ledger.

Keywords

Clearing, Coordinated Universal Time, Distributed Ledger, FinTech, High Frequency Trading, Precision Time, Price Discovery, Settlement, Stock Market, Timestamping.
User
Notifications
Font Size

  • Bayer D, Haber S, Scott Stornetta W. Improving the efficiency and reliability of digital timestamping. Sequences II: Methods in Communication, Security and Computer Science. 1993:329–34.

  • Benaloh J, De Mare M. Efficient broadcast time-stamping. Clarkson University: Department of Mathematics and Computer Science TR; 1991. p. 91–101.

  • Bernhardt D, Taub B. Front-running dynamics. JET. 2008; 138(1):288–96. https://doi.org/10.1016/j.jet.2007.05.005

  • Broby D, Paul G. The financial auditing of distributed ledgers, blockchain and cryptocurrencies. Journal of Financial Transformation. 2017; 46:76–88.

  • Brogaard J, Hendershott T, Riordan R. High-frequency trading and price discovery. Rev Financ Stud. 2014; 27(8):2267–306. https://doi.org/10.1093/rfs/hhu032

  • Goodhart CAE, O’Hara M. High frequency data in financial markets: Issues and applications. J Empir Financ. 1997; 4(2):73–114.

  • Haber S, Stornetta WS. How to timestamp a digital document. Conference on the Theory and Application of Cryptography; Berlin, Heidelberg: Springer; 1990. p. 437–55.

  • Hagstromer B, Norden L. The diversity of high-frequency traders. J Fin Markets. 2013; 16(4):741–70. https://doi.org/10.1016/j.finmar.2013.05.009

  • Hasbrouck J. One security, many markets: Determining the contributions to price discovery. JOF. 1995; 50(4):1175– 99. https://doi.org/10.1111/j.1540-6261.1995.tb04054.x

  • Hendershott T, Menkveld AJ. Price pressures. J Financ Econ. 2014; 114(3):405–23. https://doi.org/10.1016/j.jfineco.2014.08.001

  • Madhavan A. Market microstructure: A survey. J Fin Markets. 2000; 3(3): 205–58. https://doi.org/10.1016/S1386-4181(00)00007-0

  • Mainelli M, Smith M. Sharing ledgers for sharing economies: An exploration of mutual distributed ledgers (aka blockchain technology). The Journal of Financial Perspectives. 2015; 3(3):38–69.

  • Massacci F, Ngo N, Nie J, Venturi D, Williams J. FuturesMEX: Secure distributed, futures market exchange. Unpublished Journal Submission. 2017.

  • Menkveld AJ, Koopman SJ, Lucas A. Modeling aroundthe-clock price discovery for cross-listed stocks using state space methods. J Bus Econ Stat. 2007; 25(2):213–25. https://doi.org/10.1198/073500106000000594

  • Pinna A, Ruttenberg W. Distributed ledger technologies in securities post-trading revolution or evolution? 2016.


Abstract Views: 301

PDF Views: 142




  • The Role of Precision Timing in Stock Market Price Discovery when Trading through Distributed Ledgers

Abstract Views: 301  |  PDF Views: 142

Authors

Daniel Broby
Strathclyde Business School, Strathclyde University, 199 Cathederal Street, Glasgow G40QU, Scotland, United Kingdom
Devraj Basu
Strathclyde Business School, Strathclyde University, 199 Cathederal Street, Glasgow G40QU, Scotland, United Kingdom
Ashwin Arulselvan
Strathclyde Business School, Strathclyde University, 199 Cathederal Street, Glasgow G40QU, Scotland, United Kingdom

Abstract


This paper investigates the importance of “time of execution” and the relevance of “precision time” in order driven transactions done over distributed ledgers. We created a distributed market place using stock market price data from the Toronto Stock Exchange (TMX). We then proceeded to test and measure the impact of timing of orders at the nanosecond level. Whilst price discovery in order driven markets is done instantaneously, with distributed markets, it is necessary to know which order to process first to avoid “front-running”. We argue that a protocol for the time of order of receipt and execution should be subject to nanosecond stacking. Our approach incorporates both transitory and permanent price discovery components. It allows for the efficient processing of transactions and the order that are received by a market clearing distributed ledger.

Keywords


Clearing, Coordinated Universal Time, Distributed Ledger, FinTech, High Frequency Trading, Precision Time, Price Discovery, Settlement, Stock Market, Timestamping.

References





DOI: https://doi.org/10.18311/jbt%2F2019%2F23355