Dark Pools and Flash Trading: New trends in Equity Trading?

Textbook, 2015, 82 Pages

Business economics - Banking, Stock Exchanges, Insurance, Accounting

Excerpt

VIII

List of Abbreviations

ATS

Alternative Trading Systems

BATS

Better Alternative Trading System

CESR

Committee of European Securities Regulators

EBBO

European Best Bid and Offer

ECN

Electronic

Communications

Network

Fair

Disclosure

IOI

Indicator of Interest

MiFID

Markets in Financial Instruments Directive

MTF

Multilateral

Trading

Facility

NASDAQ

National Association of Securities Dealers Automated Quotations

NBBO

National Best Bid and Offer

NMS

National Market System

NYSE

New York Stock Exchange

OHR

Order Handling Rules

OTC

Over-the-counter

SEC

United

States

Securities

and

Exchange

Commission

SOR

Smart Order Routers

1. Introduction

The history of equity trading began hundreds of years ago, when the first companies

needed money for their projects and asked private investors instead of banks for equity.

Later, in 1969, when the first electronic stock trading was introduced in the U.S., namely

Instinet or Institutional Networks, trading became electronic. Shortly thereafter, in 1971,

the first fully automated exchange, the so called NASDAQ (National Association of

Securities Dealers Automated Quotations), was created. The NYSE, which was founded

as a physical, order-driven, auction-based market, entered the electronic sphere in the

early 1970s. In 1977 the first electronic trading montage screen, showing quotes on

NYSE stocks, went live through Instinet's efforts. Another pioneering platform was

Investment Technology Group's (ITG) POSIT (Portfolio System for Institutional Trading),

which was introduced in the late 1970s. POSIT was already crossing block trades

electronically away from the exchanges on a scheduled basis (Domowitz et al, 2008: 1).

From 1980 on brokers started to use their own electronic proprietary trading systems to

cross trades for clients. Further pioneering move was the introduction of the first after-

hours crossing platform in 1986 by Instinet. In Europe it was the Paris Bourse (today

part of NYSE Euronext), which developed a leading edge electronic trading platform for

the French stock market as early as 1989. Although electronic trading developed during

the late 1980s and early 1990s, it was only in the late 1990s and beginning of the 21

century that technology, communications and networking reached a state that ATSs

became useable (ibid).

Although the concept of hiding is not a new concept, as it has been around for several

years, in the form of hidden orders, the dark pool phenomenon and crossing network

structure came into focus only in 2002, when the INET, a product of a merger between

the Island ECN and Instinet, announced that it would stop displaying order book limit

prices to avoid connecting to the relatively slow Intermarket Trading System (ITS). With

this action INET effectively "went dark", as limit orders were no longer visible to market

participants. A formal dark pool platform, Instinet CBX, followed in 2003 (Domowitz et al,

2008: 1).

While in 2003, 7 crossing networks has been established as providers of nondisplayed

liquidity, only 5 years later their number had surpassed 40. Although estimations about

the current dark volumes are not easy, as these volumes appear mixed with all OTC

trades, it can be assumed that approximately 15 % of all traded volume in the U.S. and

about 10 % of all European trades are executed in the dark. With this fast growth, in only

one decade, electronic trading and especially dark trading became a very important

market mechanism. This becomes even more apparent when looking at the projections

which suggest that at least half of European and U.S. markets will trade in the dark

within the next 5 years (Grant, 16.12.2009).

This book is supposed to give the reader a better understanding of equity trading in

general, with a focus on new trading phenomenon's, namely dark pools and flash

trading. It provides a definition of equity trading in general and dark pools in special in

chapter 2 where these terms as well as other trading related terms are explained and an

overview of the trading framework is given. Moreover the most important types of orders

and order parameters are explained to the reader.

In order to better understand the concept of the new mechanisms, chapter 3 gives an

overview of the different types of market structures and explains the importance of

market liquidity. The chapter is concluded with a differentiation between liquidity

suppliers and liquidity demanders.

In chapter 4 the pricing in the dark pool sector is explained. The importance of price

discovery and price derivation is highlighted.

Chapter 5 deals with the important topic of regulation and control. Due to the multiplicity

of different national regulations, the book focuses only on the European regulatory

framework, which is MiFID.

Finally in chapter 6 the structure of dark pools is explained. All different sources of dark

liquidity are highlighted and a market overview of the dark sector is given. The chapter is

concluded with a regard on the dark sector evolution. Chapter 7 continues with the dark

pool sector and focuses on the different trading strategies in this sector. In addition the

technological aspects of dark trading are explained in non-technical terms.

Chapter 8 will summarize all important information about equity trading in general and

dark pools and flash trading in special. Further some possible future trends for the

industry development are drawn.

2. Equity Trading and its new phenomenons Definitions and

Characteristics

In the following chapter a basis about equity trading and dark pools should be given to

the reader. The most important terms will be explained and an overview of the trading

phases and the different types of orders and order parameters will be given.

2.1 What is Equity Trading?

In general equity trading can be described as the buying and selling of securities, which

can take place on a regulated market, for instance at one of the major stock exchanges

like the New York Stock Exchange (NYSE) or the London Stock Exchange (LSE), or off-

exchange, bilaterally, on the so-called Over-The-Counter (OTC) markets.

Equity trading can be performed by the owner of the shares directly or by an agent

authorized to buy and sell on behalf of the share's owner. Proprietary trading or principal

trading is buying and selling for the trader's own profit or loss. In this case, the principal

is the owner of the shares. While agency trading is buying and selling by an agent,

usually a stock broker, on behalf of a client. Agents are paid a commission to the broker

for performing the trade and for supplying the investors with research on shares.

Stock exchanges and brokers have so called market makers who help to limit price

variations (volatility) by buying and selling a particular company's shares on their own

behalf or on behalf of others clients. They are called market makers as they influence

with their trades, usually of huge blocks of shares, the price of a share. They buy certain

shares because they assume that according to researches, news flows or the market

situation, these shares give a very interesting buy opportunity and so they can sell them

to investors. The blocks of shares are only kept for a short period of time, usually of

maximum an hour (wikinvest).

2.2 Dark Pools Definition

Having define equity trading, and before getting on a more detailed discussion on the

subject, a common definition of the term dark pool should be given to the reader. Dark

pools can be defined as a type of alternative trading systems (ATS) that do not display

prices to the public, unlike on exchanges and other platforms with a "public order book",

and which are often owned by big banks like Goldman Sachs and Credit Suisse (SEC

Fact Sheet, 21.10.2009).

Another definition is given by Erik Banks, who defines a dark pool as "a venue or

mechanism containing anonymous, non-displayed trading liquidity that is available for

execution" (Erik Banks, 2010: 3).

He defines further that anonymous, non-displayed trading liquidity means order flow that

is not visible in public order books, like those operated by exchanges, and that this fact

leads to the name "dark" liquidity. Furthermore a venue is any electronic platform and a

mechanism is any structure within an exchange or any participant in the market that

offers non-displayed liquidity. Execution is, according to Erik Banks, the capability to

trade an asset through the submission of an order (ibid).

Thus it can be summarized that a dark pool is an accumulation of orders to buy or sell

stocks (or other assets), but whose existence is not publicly known or advertised.

According to his definition a dark pool resembles a traditional visible market in terms of

structure, function and executing according to market rules, but differs as it indicates not

the market depth.

2.3 Dark Pools Rationale

Having said this in the following a look should be taken on why dark liquidity exists and

why the number of dark pools and other mechanisms is growing in recent years.

In general new financial products or markets are always introduced in order to bring

market participants advantages, like costs savings, higher returns or faster execution

times. In the case of dark pools the primary drivers are confidentiality, reduced market

impact, cost savings and price improvements. To explain these drivers a simple example

can be used: If, for instance, an investor wants to buy a large number of a certain stock,

he will try to do so by being as quietly and confidentially as possible, as if his intention

becomes public there is a risk that other investors might try to jump ahead of the

investor to buy the same stock. The price of the stock would increase in such a case.

This would create an unfavorable price movement for the investor. Of course, this would

not happen if the investor would try to buy only a small number of the stock, as a small

order would not generate the same interest in the market. Thus only large trades, so

called block trades, which are defined as those in excess of several thousand shares

per trade, are central to dark liquidity (Banks, 2010: 5).

Another driver for trading in the dark is cost saving. In general it can be assumed, that

all electronic trading generates cost savings, as all execution that is done off-exchange

avoids the payment of exchange fees. In addition there is the possibility of price

improvements, as active sell-side and sophisticated buy-side institutions use advanced

technologies and analytics for different strategies, like high frequency trading or

algorithmic trading. These strategies are designed to take advantage of electronic

trading and to increase short-term returns. Venues that are able to take or provide

liquidity away from conventional exchanges are important in this process and can attract

buy- and sell-side investors. It can be considered that any mechanism or venue that

brings together sellers and buyers in a confidential manner, reduces market impact,

generates fees savings and creates the possibility for price improvements, will succeed.

In the case of dark pools all four advantages are given, which helps to explain why their

market share has increased in recent years (ibid).

Indeed various catalysts have led to the development of new venues in the last years.

First of all technological innovation plays the most important role in the evolution of the

off-exchange sector. Without the development of communications networks and the

processing of speed and power, the creation of efficient and reliable platforms and

sophisticated routers and algorithms, as well as rapid pricing and matching routines

would have not been possible. Although a closer look at the technical aspects will follow

later in the book, a correlation of the development of new venues with the rise of

increasingly sophisticated technologies is obvious.

Further to the technological innovation regulatory changes have been fundamental to

the development of the dark sector. Those changes came in various forms and across

various jurisdictions, but the most important to mention include the Regulation on Order

Handling Rules (Regulation OHR) in the U.S., the Regulation Alternative Trading

Systems (Regulation ATS) in the U.S. and the Markets in Financial Instruments Directive

(MiFID) in Europe. Another catalyst for the growth of the off-exchange market was the

so-called decimalization, so the moving of the minimum quoted price to 0.01 from some

larger amount, which had as consequence that smaller price increments led to lower

spreads, which in consequence led to lower profit opportunities and this in return led to

the reduced willingness to risk capital. Indeed the consequences of decimalization were

quite dramatically as it has caused average trade size executed on exchanges to

decrease by 70 % in the U.S. and by 50 % in Europe. As it became more difficult to

cross block trades without being noticed, more business was routed to the non-visible

markets (ibid: 15).

Further to the catalysts described above one other reason for the increasing importance

of off-exchange trading rest to mention which is capital accumulation and mobility.

Actually capital is a raw material of every economy, and includes the equity and debt

obligations firms raise to fund their operations. Therefore as the global demand for

goods and services has risen in the past, the demand for capital financing has risen as

well. As industrialized and emerging nations continue to build on their economic bases it

is quite likely that the amount of outstanding capital will continue to rise. And as capital

is mainly supplied by institutional investors, like mutual funds, hedge funds, insurance

companies, and other asset managers, this has radically reshaped capital mobilization,

allocation and trading. The most important of these investors, namely hedge fund

investors, are especially interested in sophisticated, high-volume trading strategies, like

high frequency trading or program trading, and these are critically important to the

electronic markets and dark trading. Of course, capital needs to be centralized in order

to give interested parties the possibility to trade it in an efficient and effective way.

Therefore both exchanges as well as over-the-counter venues are crucial for capital

trading. But as the supply of capital has increased enormous in the last decades, any

single venue is able to handle the large amount of outstanding capital on its own.

Therefore there is a need for a multiplicity of venues, and this made it possible for new

venues, including dark venues, to develop and expand. Further to the accumulation of

capital also the ability to move capital quickly across markets had helped in the

development of new platforms. Both traders and investors ask for rapid possibilities to

buy and sell, or transfer capital, and as this demand will probably continue, one can

assume that venues, which offer such services, will continue to benefit (ibid).

2.4 The Trading Framework

Investors trade for different purposes and over different time horizons. Therefore their

demand for and supply of liquidity are very different. But although different trading

strategies exist, the process of trading typically follows a logical sequence that

represents an entire cycle. The key elements of any trading framework include three

phases, which will be described in the following. These phases comprise together the

"lifecycle" of a trade. Some of the steps described in the following, like the entry of a

trade are very short, lasting no more than a few seconds or even milliseconds, while

other steps such as the execution can last for milliseconds, seconds, minutes, hours or

even days, depending on the specifics of a transaction. And still others such as clearing

and settlement can take up to several days to conclude.

2.4.1 Pre-trade phase

The first step in the pre-trade phase is the analysis of potential trading opportunities.

This analysis can occur through fundamental analysis, technical analysis,

benchmarking, or other models. The output of this analysis process is the identification

of a specific security that should be bought or sold. The second step of the pre-trade

phase includes the analysis of the opportunity in relation to the current trading portfolio.

As the addition of a single security can radically change the characteristics of a portfolio,

it is critical to understand the effects before the execution of a trade. The last step in the

pre-trade phase is the identification of specific transaction strategies. The trader must

decide which venues should be triggered, when the trade should be executed, what

prices are acceptable and so forth. Further the trader must also define a strategy for the

case that an order cannot be filled immediately. He must decide whether the order

should be canceled or rerouted in such a case. Another decision regards whether to

display an order or to leave it in the dark. Each one of these points contributes to the

development of a trading strategy (Bhowmik, 2012).

2.4.2 Trade phase

The first step in executing a strategy that has been developed by a trader during the first

three stages of the trading framework is the order entry. Order entry is a positive action

that must be taken by a trader. The trader can chose between various order entry

mechanisms, like verbal/telephonic communication to a broker, or via direct input into

some type of order application, like electronic communication networks (ECN) entry via

interface (e.g. application program interface), broker algorithm via interface, and so forth.

All these mechanisms are valid but whereas voice via broker is less common in today's

marketplace, algorithms are increasingly common. In fact investors send less order flow

to brokers because they can reduce costs and minimize the potential for information

leakage by using flexible technologies for order entry by themselves. The order entry

stage gives the trader the opportunity to define precisely what should be done with

regard to the purchase or sale of securities. Numerous types of orders can be selected

with parameters that define price, time, venue and so forth. While certain clients rely on

voice-only orders which are typically taped in order to ensure accurate transcription of

details and which may be followed by a confirming message from the broker, many other

clients prefer to directly input their own orders electronically by supplying relevant details

in the entry fields provided by the application. The more complex the order details, the

greater the flexibility needed within the application. Of course, if a large number of

orders should be entered, as in the case of high frequency trading for instance, the

process must be automated. In such case batches of orders may be generated

automatically by the trader's model and submitted either directly into the market or via a

router to one or several brokers or venues (ibid).

The second step in the trade phase is order routing. Even though an order has been

entered into an order management system or conveyed verbally to a broker it must still

find its way to a marketplace. This step is heavily dependent on technology. The only

practical way for tens of thousands of individual orders to enter into a marketplace at

any one time is by placing them into an electronic line and leading them to a destination.

This line is a network that connects the client terminals with the servers that feed the

engines of a particular exchange. The faster this network connection and the more

robust the server architecture and the closer to the physical proximity of an exchange,

the quicker is the delivery and the execution. The client or the broker gives the

instructions where the order should go. While some of the routing is very standardized

and can be viewed as a simple set of instructions stating that the order should be moved

from the order entry terminal and delivered to a particular destination, also more

complex routers exist. These routers are known as smart order routers (SOR) or routing

algorithms and they ensure that the order is treated in a very specific way if it is not filled

immediately. In such cases the order can be moved sequentially through other random

or defined dark of light venues in search of best execution opportunities (ibid).

The third step in the trade phase is finally the execution. This step is in fact completely

technology-driven and based on pricing and matching routines that run in an automated

way. As the loss of even some milliseconds in the process can be harmful to a trader's

position, the most important factor in order execution is time. Therefore advanced

technologies are employed, in order to route orders into venues, and to flow them

through pricing and matching engines, which match and execute, or reroute orders, with

a minimum of latency (ibid).

2.4.3 Post-trade phase

After an order has been executed, details must be reported to all stakeholders. This

comprises the first step of the post-trade phase. Reports are sent to the trader, but also

to regulatory bodies and to the market at large. But of course the levels of detail which

are reported are not the same to all parties and also the time horizons over which

reporting must occur are different. While deal confirmations are send out immediately,

via an order management system or through electronic messaging, the reporting to the

public or to regulators may occur at the end of the trading day or at some later date.

Same as the execution of an order, also the reporting is largely driven by technology

(ibid).

The last step in the trading lifecycle is the dual process of clearing and settlement. Once

the trade has been executed and reported, it must pass through the clearing process,

which is usually managed by an independent clearinghouse or the clearing department

of the venue. Clearing includes the confirmation of all relevant details of the executed

trade, including the counterparties, the price, the quantity and so forth. If any of these

details do not match then the process is diverted to a resolution department where

further investigation must be undertaken. After the clearing process is concluded the

final stage can begin, namely the settlement. This step includes the delivery of cash for

shares and vice versa, between the two parties to the trade through the clearing and

settlement agent. This step is extremely automated and usually involves electronic

debits and credits to the cash and securities accounts of buyers and sellers. Once this

stage is completed the trade lifecycle is concluded (ibid).

2.5 Orders

In trading instructions are given how and when to buy and sell securities. These

fundamental instructions for the transfer of liquidity are orders, and they are essential in

creating and transferring liquidity. In the following the most common types of orders will

be explained. Within the broad classes of orders certain additional parameters may be

attached, to specify for example the speed of execution, to achieve price improvements,

to limit the risk, or to determine the method of display.

Before describing in the following the major types of orders, some important

terminologies in relation to order types should be defined:

- Bid:

the highest price at which one party is willing to buy a security (representing

the demand side of the transaction) (Deutsche Börse Glossary)

- Offer:

the

price at which one party will sell a security (Banks, 2010: 34)

Best bid: the best buy offer. The highest price at which one party is willing to buy

(www.centralact.com)

- Best offer: the best sell offer. The lowest price at which one party is willing to sell

(ibid)

- Inside spread: the difference between the best bid and best offer (Banks, 2010:

34)

2.5.1 Market Orders

Market orders, alias unpriced orders, are the classic form of orders. They are not-limited

buy or sell orders which should be executed as soon as possible, at the next price in the

market.

Within the class of market orders several subtypes exist, including stop orders, trailing

stop orders, market-to-limit orders, market-if-touched orders, market-on-close orders,

market-on-open orders, uptick/downtick orders and sweep-to-fill orders.

The most used of these order types are stop orders, trailing stop orders, market-to-limit

orders and sweep-to-fill orders (Deutsche Börse Group, 2009:11).

Stop orders are similar to limit orders: securities are sold or bought if a trigger price is

attained. In the case of insufficient volume a fill cannot be guaranteed even if the stop is

triggered and the order converts into a market order.

Trailing stop orders are similar to stop orders except that a trailing amount is attached

that moves with the market price.

Market-to-limit orders are not limited buy or sell orders which should be executed at an

action price or in the continuous trading at the best limit price in the order book. A

Market-to-limit order is only accepted if there are only limit orders at the opposite site in

the order book. If only a part execution of a market-to-limit order is possible, the rest of

the order will be placed in the order book with the limit of the part execution (ibid).

Sweep-to-fill orders are orders that should be executed as fast as possible at the best

available price, regardless of venue. That means that these orders are submitted to the

first venue with the best price and are filled to the extent possible. Then the remaining

portion sweeps to the next venue with the next best price, and so forth until the order is

completed. Typically with each sweep the price becomes less favorable (Banks, 2010:

36).

2.5.2 Limit Orders

Further to market orders a limit can be added to an order. Limit orders are buy or sell

orders with a price limit. They should be executed at a certain price or better. If the price

limit is not reached, limit orders are not executed and depending on the investors

instruction these orders are than deleted or the investor gives also a time limit, which

indicates how long a limit order is valid. An unfilled limit order is placed in the

exchange's limit order book for future execution. While in the process of being filled, a

limit order is considered to be a working order.

Subtypes of limit orders are: stop limit orders, trailing stop limit orders, limit-if-touched

orders, limit-on-close orders, limit-on-open orders, discretionary orders and intermarket

sweep orders (Deutsche Börse Group, 2009: 11).

2.5.3 Peg Orders

Peg orders are based on a price that is pegged to a recognized base reference, such as

the NBBO or the EBBO. Within the class of peg orders the following subtypes can be

considered:

- Primary peg orders: are peg orders that peg to the same side of the base

reference

- Market peg orders: are peg orders that peg to the opposite side of the base

reference

- Midpoint peg orders: with midpoint orders the execution of an order takes place at

the precise midpoint course between ask and bid price of the base reference.

Midpoint orders interact only with other midpoint orders and not with the other

orders in the order book.

- Alternative midpoint peg orders: are peg orders that peg to the "less aggressive"

side of the midpoint (Interaktivbrokers.com).

2.5.4 Hybrid and Complex Orders

Further to the order types noted above, many other orders can be created, by combining

different order types with each other. An example is for instance the cross order, which

is an order to buy and an order to sell the same stock at a specific price. Sometimes

broker receive an order from one customer to buy and from another customer an order

to sell the same security; this is then a cross order, which is not fictitious.

The most complicated order types are called algorithms, which contain many different

parameters that define precisely how an order is to be filled (Banks, 2010: 40).

2.5.5 Order Parameters

Many of the orders from the four main order classes' described above can be further

defined through additional parameters, namely display parameters, quantity parameters

and time in force parameters. In the following an overview over the most common

parameters should be given.

2.5.5.1 Display Parameters

Display parameters need to be added specifically, with a "do not display" instruction. If

such an instruction is not given, an order is assumed to be visible to the public in most

marketplaces. A "do not display" inscription can be applied to all or only part of the order.

If it applies to all of the order, the order is a hidden one, if it applies only to a part of the

order; the order is an iceberg order. It should be noted at this at this point that both

hidden and iceberg orders are critical to dark liquidity formation. Therefore a closer look

at these two order types will be taken in the following.

2.5.5.1.1 Hidden Orders

Hidden orders are non-visible limit orders, which are embedded in a venue's dark book.

Generally, they are excluded from the MiFID pre-trade transparency regulations,

because of their huge volume compared with normal market size. In order to comply

with MiFID requirements for orders which are large in scale the minimum size for a

hidden order is specified in Table 2 in Annex II of the MiFID Implementing Regulation

1287/2006, titled "Orders large in scale compared with normal market size" (CESR,

2010: 18).

Hidden orders rest hidden, even if the rest volume of a part execution is smaller than the

requested minimum size. Generally hidden orders are executed in the order book as

limit orders, which mean that the execution follows the price-/time priority. However if

there are hidden and visible orders at the same price, visible orders are executed before

hidden orders (Deutsche Börse Group, 2009: 15).

2.5.5.1.2 Iceberg Orders

Iceberg orders (also known as reserve orders) are orders which make it possible to an

investor to place orders with huge volume into the order book without making the whole

volume visible to the public. Iceberg orders are limit orders with a defined total volume

as well as a defined visible part of the order, the so called peak-volume. Both, the total

volume as well as the peak-volume, have to match a so called round lot, which means

that the volume of an iceberg order has to be a normal unit of trading for a security,

which are generally 100 shares of a stock.

In the continuous trading when the first peak has been fully executed, another peak is

automatically displayed in the order book. The hidden part of the order is then reduced

by the corresponding number of shares. When an iceberg order's displayed part is fully

executed, and the next peak converts from hidden to displayed status in the order book,

the newly displayed peak also receives a new time stamp which determines its time

priority (Banks, 2010: 42).

For instance, if the total volume of an iceberg order is 100,000 shares and the peak

volume is defined as 10,000 shares, the market would see only 10,000 shares on the

ask or bid side of the order book, depending whether the order would be a buy or a sell

order. When the display quantity of 10,000 shares would be executed, the next peak

volume would be automatically visible to the market, and wait for its next opportunity to

get a fill. The trading system automatically displays new peaks after additional

executions, until the final peak is displayed or the order is cancelled. As iceberg orders

are not specially marked in the order book, it is not visible from the outside whether an

order has a rest volume or not. Only after the full execution the total volume is visible.

But the immediate automatic display of a new peak after the currently displayed peak is

executed creates a distinct pattern in the order book updates that is observable to any

trader who monitors the order book closely. A trader who detects an iceberg order

cannot determine the iceberg order's size although its peak size may provide a signal.

But as peaks are executed and new ones are displayed, the trader can form more

precise forecasts of the order's total size. So rather than disclose the information about

the order size right away, iceberg orders sequentially reveal more information as peaks

are executed. Iceberg orders are therefore often justified and promoted as an order type

that facilitates the execution of large orders with minimal price impact, a property that

should appeal to large liquidity traders. In the order book iceberg orders, including their

hidden volume, have a higher priority than hidden orders (Deutsche Börse Group, 2009:

15).

Although both hidden and iceberg orders assume lower priority than visible orders that

have the same price level, these order types are, according to recent empirical evidence

about traders' order submission strategies on electronic limit order books, more and

more used. The growing importance of these special types of orders can be seen in the

fact that they make up recently around 44 percent of all Euronext volume (Buti et al,

2008: 3).

2.5.5.2 Quantity Parameters

In addition to display parameters, many of the orders described above may also contain

quantity parameters. These parameters specify the action to be taken if the full order

cannot be executed instantly. The most common quantity parameters are:

- Fill-or-kill (FOK): with this designation the order should be immediately and

entirely executed. If this is not possible the order should be cancelled (Private

Trader Club; Trader Lexikon).

- All-or-none (AON): with this designation the order should be immediately and

entirely executed. If the execution of the entire amount is not possible the order

remains in force pending future execution unless it is specifically cancelled. An