Electronic trading and its implications for financial systems

The adoption of electronic trading systems has transformed the economic landscape of trading venues and is proving a force for change in market architecture and consequential trading possibilities. “Electronic trading” here refers to trading in wholesale financial markets and focuses on the central feature of electronic trading systems, automation of trade execution. Such systems usually also feature electronic order routing and dissemination of trade
information and may link through to clearing and settlement. Electronic trading both removes geographical restraints and allows continuous multilateral interaction (whereas telephone trading allows only the former and floor trading only the latter). It allows much higher volumes of trades to be handled, and in customised ways that until recently would have been technically impossible or
prohibitively expensive. This paper considers areas where these enabling effects have been particularly important in wholesale financial markets and how they raise wider, policy implications.