MARKET MICROSTRUCTURE FOR PRACTITIONERS (2ND EDITION)

This book delves into the consequences of Reg NMS and MiFID on market microstructure, covering changes in market design, electronic trading, and investor and trader behaviors. It analyzes the emergence of high-frequency trading and critical events like the "Flash Crash" of 2010 in depth. Using a quantitative viewpoint, the book explains how an attrition of liquidity and regulatory changes can impact the overall microstructure of financial markets. A mathematical Appendix details the quantitative tools and indicators used throughout the book, allowing the reader to further explore the concepts independently.

The book is written by practitioners and theoretical experts, covering both practical aspects (such as the optimal infrastructure needed to trade electronically in modern markets) and abstract analyses (like the use of entropy measurements to understand the progress of market fragmentation). As market microstructure is a relatively recent academic field, students will benefit from the book's overview of the current state of microstructure and utilize the Appendix to understand important methodologies. Policy makers and regulators will find this book useful for accessing theoretical analyses on real cases.

For readers who are practitioners, the book provides data analysis and explanations of basic processes, such as the design of Smart Order Routing and trade scheduling algorithms. In this second edition, the authors have added a significant section on orderbook dynamics, showcasing how liquidity can predict future price moves and how High Frequency Traders can profit from it. The section on market impact has also been updated to demonstrate how buying or selling pressure can affect prices not only for a few hours but even for days, and how prices may or may not relax after a period of intense pressure.

Furthermore, this edition includes pages on Dark Pools, Circuit Breakers, and added information outside of Equity Trading, as MiFID 2 is likely to push fixed income markets towards more electronification. The authors explore the expected outcomes of this change in microstructure. The Appendix has also been augmented to include the propagator models (for intraday price impact), a simple version of Kyle's model (1985) for daily market impact, and a more sophisticated optimal trading framework to support the design of trading algorithms.

Overall, this book provides a comprehensive and up-to-date understanding of the evolving landscape of market microstructure, catering to a wide range of readers, including students, policy makers, regulators, and practitioners in the financial industry.

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