L1 - Market Structure, Firm Strategy, and Market Performance

• The Scale and Scope of Online Retail

  Staff Analytical Note 2018-19 Alex Chernoff

  This paper studies the growth of online retail over the period 1999–2012, using confidential firm-product-level data for Canada. The revenue of online retailers is decomposed into the contributions of product scope (the number of product categories) and product scale (average revenue per product category).

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Digital Currencies, Firm dynamics, International topics JEL Code(s): D, D2, D22, L, L1, L11, L8, L81

• Customer Liquidity Provision in Canadian Bond Markets

  Staff Analytical Note 2018-12 Corey Garriott, Jesse Johal

  This analytical note assesses the prevalence of liquidity provision by institutional investors in Canadian bonds. We find that the practice is not prevalent in Canada. Customer liquidity provision is more prevalent for less liquid bonds, on days when liquidity is already expensive or when there are larger trading volumes. In our interpretation, Canadian dealers draw on customer liquidity as a supplementary source of liquidity and only when necessary, given its cost.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Financial Institutions, Financial markets, Financial system regulation and policies, Market structure and pricing, Recent economic and financial developments JEL Code(s): G, G1, G14, G2, G20, L, L1

• High-Frequency Trading and Institutional Trading Costs

  Staff Working Paper 2018-8 Marie Chen, Corey Garriott

  Using bond futures data, we test whether high-frequency trading (HFT) is engaging in back running, a trading strategy that can create costs for financial institutions. We reject the hypothesis of back running and find instead that HFT mildly improves trading costs for institutions.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Financial markets, Financial system regulation and policies, Market structure and pricing JEL Code(s): G, G1, G14, G2, G20, L, L1, L10

• What Drives Episodes of Settlement Fails in the Government of Canada Bond Market?

  Staff Working Paper 2017-54 Jean-Sébastien Fontaine, James Pinnington, Adrian Walton

  We study settlement fails for trades in the Government of Canada bond market. We find that settlement fails do not occur independently. Using a novel and comprehensive dataset, we examine three drivers of fails.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Financial markets, Market structure and pricing, Payment clearing and settlement systems JEL Code(s): E, E4, G, G1, G2, G21, L, L1

• Do Canadian Broker-Dealers Act as Agents or Principals in Bond Trading?

  Staff Analytical Note 2017-11 Daniel Hyun, Jesse Johal, Corey Garriott

  Technology, risk tolerance and regulation may influence dealers to reduce their trading as principals (using their own balance sheets for sales and purchases of securities) in favour of agency trading (matching client trades).

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Financial Institutions, Financial markets, Financial system regulation and policies, Market structure and pricing, Recent economic and financial developments JEL Code(s): G, G1, G14, G2, G20, L, L1

• Fintech: Is This Time Different? A Framework for Assessing Risks and Opportunities for Central Banks

  Staff Discussion Paper 2017-10 Meyer Aaron, Francisco Rivadeneyra, Samantha Sohal

  We investigate the risks and opportunities to the mandates of central banks arising from fintech developments.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): Central bank research, Digital Currencies, Financial Institutions, Payment clearing and settlement systems JEL Code(s): E, E4, E42, G, G1, G2, L, L1

• May 11, 2017 The Digital Economy

  Bank of Canada Review - Spring 2017 Chris D'Souza, David Williams

  Digital technologies—cloud computing, the Internet of Things, advanced robotics, big data analytics, artificial intelligence and machine learning, social media, 3D printing, augmented reality, virtual reality, e-money and distributed ledgers—are transforming the way busi-nesses operate. How does this transformation compare with past industrial revolutions? How are digital technologies changing production systems across industries? Agile firms that use knowledge intensively and have high levels of both organizational and human capital appear set to realize the greatest benefits from digitalization. Finally, what are the implications for productivity, labour markets, inflation and monetary policy as we transition to the digital economy?

  Content Type(s): Publications, Bank of Canada Review Article Topic(s): Firm dynamics, Monetary Policy, Productivity JEL Code(s): D, D2, D24, L, L1, L10, O, O1, O3, O33

• Banking Regulation and Market Making

  Staff Working Paper 2017-7 David A. Cimon, Corey Garriott

  We present a model of market makers subject to recent banking regulations: liquidity and capital constraints in the style of Basel III and a position limit in the style of the Volcker Rule.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Financial markets, Financial system regulation and policies, Market structure and pricing JEL Code(s): G, G1, G14, G2, G20, L, L1, L10

• Information Sharing and Bargaining in Buyer-Seller Networks

  Staff Working Paper 2016-63 Sofia Priazhkina, Frank H. Page

  This paper presents a model of strategic buyer-seller networks with information exchange between sellers. Prior to engaging in bargaining with buyers, sellers can share access to buyers for a negotiated transfer. We study how this information exchange affects overall market prices, volumes and welfare, given different initial market conditions and information sharing rules.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Economic models, Firm dynamics, Market structure and pricing JEL Code(s): C, C7, C71, C78, D, D2, D21, D4, D43, D8, D85, L, L1, L13

• Options Decimalization

  Staff Working Paper 2016-57 Faith Chin, Corey Garriott

  We document the outcome of an options decimalization pilot on Canada’s derivatives exchange. Decimalization improves measures of liquidity and price efficiency. The impact differs by the moneyness of an option and is greatest for out-of-the-money options.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Financial markets, Financial system regulation and policies, Market structure and pricing JEL Code(s): G, G1, G14, G2, G20, L, L1, L10