FOOTNOTE 27 See Scott Patterson,
3. Rise of Interconnected Automated Markets
In addition to greater automation and decreased latency, derivatives markets are increasingly characterized by a high degree of interconnection. ATSs and algorithms deployed to trade particular products often interact directly and indirectly with ATSs and algorithms active in other markets and jurisdictions. Increased interconnectedness is facilitated by electronic access to real-time pricing information, automated order execution, and some standardization in communication protocols at various trading platforms. /28/ ATSs can quickly execute strategies across multiple markets within very short periods of time. Often, cross-market activity is driven by latent arbitrage opportunities and faster access to multiple markets has led to a proliferation of strategies that seek to identify and trade on the basis of these relationships. /29/
FOOTNOTE 28 For example, FIX language makes it possible for ATS to be "platform independent"--to incorporate interfaces to multiple brokers, ECNs, or exchanges.
FOOTNOTE 29 For example, "basis trading," and "futures/equity arbitrage" are statistical arbitrage strategies that seek to capitalize on deviations between prices on futures contracts and related securities contracts after macroeconomic news announcements.
Increased interconnectedness encourages price efficiencies when economically identical or related contracts are traded on multiple exchanges. However, it also increases the speed with which a disruption on one trading platform, or within
Transmission effects such as this are illustrated by events like the
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