The IMF Working Papers series is designed to make IMF staff research available to a wide audience. With nearly 300 released each year, working papers cover a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Automated trade execution systems are examined with respect to the degree to which they automate the price discovery process. Seven levels of automation of price discovery are identified, and 47 systems are classified according to these criteria. Systems operating at various levels of automation are compared with respect to age, geographical location, and type of securities traded. Information provided to market participants, and asymmetries of information between traders with direct access to the automated market and outside investors also are examined. It is found, for example, that the degree of asymmetric information increases with the level of automation of price discovery. The potential for trading abuses related to prearranged trading, noncompetitive execution, and trading ahead of customers is analyzed for each level of automation. Certain levels of automation widen the opportunities for trading abuses in some respects, but may narrow them in others.