Quasi-centralized limit order books |
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| Authors: | Martin D. Gould Mason A. Porter Sam D. Howison |
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| Affiliation: | 1. Imperial College, CFM–Imperial Institute of Quantitative Finance, London, SW7 2AZUK.;2. Oxford Centre for Industrial and Applied Mathematics, Mathematical Institute, University of Oxford, Oxford, OX2 6GGUK.;3. CABDyN Complexity Centre, University of Oxford, Oxford, OX1 1HPUK.;4. Department of Mathematics, University of California, Los Angeles, CA, 90095USA.;5. Oxford–Man Institute of Quantitative Finance, University of Oxford, Oxford, OX2 6EDUK. |
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| Abstract: | 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. In this paper, 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 argue that the quote-relative framework often used to study other LOBs is not a sensible reference frame for QCLOBs, so we instead introduce an alternative, trade-relative framework, which we use to study the statistical properties of order flow and LOB state in our data. We also uncover an empirical universality: although the distributions that describe order flow and LOB 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 LOB state for a single trading day. Our model provides similar performance to that of parametric curve-fitting techniques but is simpler to compute and faster to implement. |
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| Keywords: | Limit order books Quasi-centralized liquidity Market microstructure Foreign exchange |
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