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Regulating Market Microstructure

Thomas Ernst & Chester S. Spatt

Annual Review of Financial Economics2025https://doi.org/10.1146/annurev-financial-112923-112656article
AJG 3ABDC B
Weight
0.37

Abstract

This article provides an overview of the regulation of market microstructure, particularly in equity and option markets. We emphasize the motives for regulation and restrictions on the trading process, including the distinctive regulatory environments (and regulators) for different financial instruments as well as the role of brokers in routing trades, and market makers who intermediate trade. Our article highlights such central features of the design of markets as best execution responsibilities; order protection (trade-through) restrictions (Regulation NMS); payment for order flow, tick size, and access fees; and the role of auctions, transparency, and short-selling restrictions. We point to some of the distinctive features of fixed-income trading and market design and the emerging role of litigation in determining regulatory outcomes.

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https://doi.org/https://doi.org/10.1146/annurev-financial-112923-112656

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@article{thomas2025,
  title        = {{Regulating Market Microstructure}},
  author       = {Thomas Ernst & Chester S. Spatt},
  journal      = {Annual Review of Financial Economics},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1146/annurev-financial-112923-112656},
}

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Evidence weight

0.37

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.16 × 0.4 = 0.06
M · momentum0.53 × 0.15 = 0.08
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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