Price Formation and Asset Allocations of the Electronic Trading System Xetra

Jan Wenzelburger () and Xihao Li

No 198, Computing in Economics and Finance 2004 from Society for Computational Economics

Abstract: In the past decades, the amount of worldwide security transactions that was processed by electronic trading platforms increased significantly. In this paper we develop a theoretical framework for the pricing of limit orders of the Electronic Security Trading System Xetra operated by the German stock exchange (Deutsche Boerse) in Frankfurt, Germany. We investigate the fundamental trading principles of the Xetra System showing that it is a multi-unit double auction. We formalize the price formation and provide conditions under which a unique so-called Xetra Price exists. It is shown that this price may not be market clearing in the sense of Walrasian equilibrium. We formalize the rationing mechanism of Xetra which determines the asset allocation and analyze its properties. This paper may serve as a first step towards the analysis of the dynamics of prices and asset allocations in electronic trading systems

Keywords: Capital asset pricing; financial markets; multi-unit double auctions (search for similar items in EconPapers)
JEL-codes: D44 D80 G10 G12 (search for similar items in EconPapers)
Date: 2004-08-11
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf4:198

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