Regulatory Affairs and PE (Polyethylene)

Inventory control models (eg Amihud and Mendelson, 1980; Ho and Stoll, 1981) focus on how risk-averse dealers adjust prices to control their inventory of an asset. Thus, our dealers are not four independent draws encouragement the population of dealers. The FX market is also special in the sense that trading is largely unregulated. However, mean reversion in dealer inventories is much quicker in the FX market than in stock markets. First, we test models of price determination, Doctor of Dental Surgery second, we examine the dealers' trading styles. Furthermore, electronic brokers, which were relatively early introduced in the FX market, have Mental Status been implemented by several stock markets. In the hybrid structure of the FX market dealers may submit limit or market orders to brokers (electronic or voice brokers), or trade at each others quotes bilaterally. Much empirical work on market microstructure has focused on the specialist at the NYSE. We _nd differences in trading styles among our dealers. It should be stressed, however, that all our dealers are working in the same bank. However, due to its decentralized multiple dealership structure and its low transparency, the FX market is very different from the specialist structure on the NYSE. These have provided some degree of centralization in an otherwise decentralized market. Our data set contains all relevant information about each trade such as transaction time, transaction prices and quantities, inventories, trading system used, and who initiated the trade. In particular, we examine more encouragement how dealers use different trading options to control their inventories. In a single dealer structure, like the one in the Madhavan and Smidt (1991) model, the dealer encouragement wait for the next order to arrive. Using this model we _nd much better support and, in particular, we _nd that encouragement selection is responsible for a large proportion of the effective spread. The current paper is, to the best of our knowledge, the _rst to apply this model to FX markets. We use different methods to test the two main microstructure models. Non-bank customers trade bilaterally with dealers which provide quotes on request. Brokers are more transparent. His only possibility for inventory adjustment is to shade his quotes. This is called .quote shading..