MICEX vs RTS: Battle of Exchanges

Who wins the order flow supremacy?

Discussion by Piotr Korczak, University of Bristol

3rd EMG Workshop on Microstructure of Financial MarketsCass Business School, London, 1 May 2009

What do the authors do?

• The analysis of price discovery of 7 Russian stocks listed both on MICEX and RTS

• Reconstruction of the limit order book, application of standard measures of price discovery across markets (Hasbrouck, Gonzalo/Granger)

• Main finding• Majority of price discovery (65-90%) on MICEX

which has 80% of the combined MICEX/RTS trading volume

General comments

• Important and up-to-date issue of competition between trading venues (exchanges, trading platforms)

• Thorough analysis• … BUT missing blocks

– Other trading venues for the sample stocks– The effect of the exchange rate

Price discovery and liquidity

• Shares in trading volumes

Source: http://www.nes.ru/~agoriaev/FMI4%20primary%20and%20secondary%20markets.pdf

Price discovery and exchange rate

• MICEX: prices in Roubles• RTS: prices in US Dollars• The fixed exchange rate during the day can

distort the picture• See also, Grammig, Melvin and Schlag (JEF,

2005) on how volatility of the exchange rate influences the results from the bivariate vs trivariate price discovery models

Other comments – Primer on MICEX and RTS

• Do we know who trades there?– Retail investors vs. institutions?– Foreign vs. domestic investors?

• Does trading in USD and minimum trading lot on RTS have an impact on who trades there?

• Do we expect investors to operate across the markets?– Arbitrage, order splitting?

Other comments - Positioning of the paper

• Strengthen the link with the literature on alternative domestic trading venues

• Play down the link with the literature on international cross-listing– Trading in domestic vs. foreign venues influenced by

information frictions, differences in monitoring, corporate governance standards, time zone…

Possible extensions

• How microstructure of the domestic market changes when the foreign market is open• See, Moulton and Wei (JFM, forthcoming)