Seminar (Dept. of Finance)

Title: Anticompetitive Price Referencing

Speaker: Yueshen Zhou, Assistant Professor of Finance, Lee Kong Chian School of Business, Singapore Management University

Time: 10:00-11:30, June 7, 2024(Friday)

Venue: Room 1008, Mingde Business Building

Language: English/Chinese

ABSTRACT:

Off-exchange trades are often executed by referencing on-exchange prices. In equilibrium, such price referencing softens market makers’ on-exchange competition and makes liquidity expensive for investors. Additionally, by equalizing on- and off-exchange prices, price referencing guarantees “best-execution” and makes investors indifferent where to trade. Market makers effectively obtain a license to fragment orders off exchange, raising their profits but reinforcing market-wide illiquidity. This inefficiency remains tenacious even if more market makers enter and if they are forced to compete off exchange, as in the SEC’s proposed order-by-order auction. The model yields important implications for regulating off-exchange trading.

SHORT BIOGRAPHY:

Yueshen Zhou is an Assistant Professor of Finance at Lee Kong Chian School of Business, Singapore Management University. Before joining Lee Kong Chian School of Business, he was an Assistant Professor of Finance at INSEAD. He obtained his Ph.D in finance from VU University Amsterdam and Tinbergen Institute. His research interests lies in Market Microstructure. His paper has been published on Journal of Financial Economics、Journal of Financial and Quantitative Analysis、Management Science、Review of Financial Studies and etc.