Stock markets : information vendors need SEC oversight to control automation risks : report to the Chairman, Securities and Exhange Commission /

"B-246404"--P. 1.

Report to the Commission by the Trading & Exchange Division on floor trading, January 15, 1945.

Report prepared by Raymond Vernon.

A note on execution costs for stock index futures: Information versus liquidity effects

This paper examines execution costs and the impact of trade size for stock index futures using price-volume transaction data from the London International Financial Futures and Options Exchange. Consistent with Subrahmanyam [Rev. Financ. Stud. 4 (1991) 11] we find that effective half spreads in the stock index futures market are small compared to stock markets, and that trades in stock index futures have only a small permanent price impact. This result is important as it helps to better understand the success of equity index products such as index futures and Exchange Traded Funds. We also find that there is no asymmetry in the post-trade price reaction between purchases and sales for stock index futures across various trade sizes. This result is consistent with the conjecture in Chan and Lakonishok [J. Financ. Econ. 33 (1993) 173] that the asymmetry surrounding block trades in stock markets is due to the high cost of short selling and the general reluctance of traders to short sell on stock markets. (C) 2004 Elsevier B.V. All rights reserved.

Exchange rate exposure : do size and foreign operations matter?

Purpose – The purpose of this paper is to examine the effect of firm size and foreign operations on the exchange rate exposure of UK non-financial companies from January 1981 to December 2001. Design/methodology/approach – The impact of the unexpected changes in exchange rates on firms’ stock returns is examined. In addition, the movements in bilateral, equally weighted (EQW) and trade-weighted and exchange rate indices are considered. The sample is classified according to firm size and the extent of firms’ foreign operations. In addition, structural changes on the relationship between exchange rate changes and individual firms’ stock returns are examined over three sub-periods: before joining the exchange rate mechanism (pre-ERM), during joining the ERM (in-ERM), and after departure from the ERM (post-ERM). Findings – The findings indicate that a higher percentage of UK firms are exposed to contemporaneous exchange rate changes than those reported in previous studies. UK firms’ stock returns are more affected by changes in the EQW, and US$ European currency unit exchange rate, and respond less significantly to the basket of 20 countries’ currencies relative to the UK pound exchange rate. It is found that exchange rate exposure has a more significant impact on stock returns of the large firms compared with the small and medium-sized companies. The evidence is consistent across all specifications using different exchange rate. The results provide evidence that the proportion of significant foreign exchange rate exposure is higher for firms which generate a higher percentage of revenues from abroad. The sensitivities of firms’ stock returns to exchange rate fluctuations are most evident in the pre-ERM and post-ERM periods. Practical implications – This study provides important implications for public policymakers, financial managers and investors on how common stock returns of various sectors react to exchange rate fluctuations. Originality/value – The empirical evidence supports the view that UK firms’ stock returns are affected by foreign exchange rate exposure.

The exchange rate exposure of UK non-financial companies

Purpose – The purpose of this paper is to investigate the exchange rate exposure of UK nonfinancial companies from January 1981 to December 2001. Design/methodology/approach – The study employs different exchange rate measures and adopts an equally weighted exchange rate. The analyses are conducted at the firm level. All analyses are conducted by regressing the firm’s exchange rate exposure coefficients on its size, foreign activity variables and financial hedging proxies over the whole sample period. Findings – The findings show that a higher percentage of UK non-financial companies are exposed to exchange rate changes than those reported in previous studies. Generally, the results provide a stronger support for the suggested equally weighted rate as an economic variable, which affects firms’ stock returns. The results also show a high proportion of positive exposure coefficients among firms with significant exchange rate exposure, indicating a higher proportion of firms benefiting from an appreciation of the pound. Finally, the results also indicate evidence that firms’ foreign operations and hedging variables affect their sensitivity to exchange rate exposure. Practical implications – This study provides important implications for public policymakers who wish to understand links between policies that affect exchange rates and relative wealth effects. Originality/value – The empirical results of this study should help investors to examine how common stock returns react to exchange rate fluctuations when making financial decisions, and prove useful for financial managers when measuring exposure to foreign exchange rate changes.

The microstructure of the Irish stock market

This is the first paper to examine the microstructure of the Irish Stock Market empirically and is motivated by the adoption, on June 7th of Xetra the modern pan European auction trading system. Prior to this the exchange utilized an antiquated floor based system. This change was an important event for the market as a rich literature exists to suggest that the trading system exerts a strong influence over the behavior of security returns. We apply the ICSS algorithm of Inclan and Tiao (1994) to discover whether the change to the trading system caused a shift in unconditional volatility at the time Xetra was introduced. Because the trading mechanism can influence volatility in a number of ways we also estimate the partial adjustment coefficients of the Amihud and Mendelson (1987) model prior and subsequent to the introduction of Xetra. Although we find no evidence of volatility changes associated with the introduction of Xetra we do find evidence of an increase in the speed of adjustment (JEL: G15).

A conceptual framework of accounting policy choice under SSAP 20

Purpose - To provide a framework of accounting policy choice associated with the timing of adoption of the UK Statement of Standard Accounting Practice (SSAP) No. 20, "Foreign Currency Translation". The conceptual framework describes the accounting policy choices that firms face in a setting that is influenced by: their financial characteristics; the flexible foreign exchange rates; and the stock market response to accounting decisions. Design/methodology/approach - Following the positive accounting theory context, this paper puts into a framework the motives and choices of UK firms with regard to the adoption or deferment of the adoption of SSAP 20. The paper utilises the theoretical and empirical findings of previous studies to form and substantiate the conceptual framework. Given the UK foreign exchange setting, the framework identifies the initial stage: lack of regulation and flexibility in financial reporting; the intermediate stage: accounting policy choice; and the final stage: accounting choice and policy review. Findings - There are situations where accounting regulation contrasts with the needs and business objectives of firms and vice-versa. Thus, firms may delay the adoption up to the point where the increase in political costs can just be tolerated. Overall, the study infers that firms might have chosen to defer the adoption of SSAP 20 until they reach a certain corporate goal, or the adverse impact (if any) of the accounting change on firms' financial numbers is minimal. Thus, the determination of the timing of the adoption is a matter which is subject to the objectives of the managers in association with the market and economic conditions. The paper suggests that the flexibility in financial reporting, which may enhance the scope for income-smoothing, can be mitigated by the appropriate standardisation of accounting practice. Research limitations/implications - First, the study encompassed a period when firms and investors were less sophisticated users of financial information. Second, it is difficult to ascertain the decisions that firms would have taken, had the pound appreciated over the period of adoption and had the firms incurred translation losses rather than translation gains. Originality/value - This paper is useful to accounting standards setters, professional accountants, academics and investors. The study can give the accounting standard-setting bodies useful information when they prepare a change in the accounting regulation or set an appropriate date for the implementation of an accounting standard. The paper provides significant insight about the behaviour of firms and the associated impacts of financial markets and regulation on the decision-making process of firms. The framework aims to assist the market and other authorities to reduce information asymmetry and to reinforce the efficiency of the market. © Emerald Group Publishing Limited.

Stock market efficiency, the small firm effect and cointegration

The cointegration methodology commonly used for testing the efficiency of the foreign exchange market is applied to a sample of UK share prices. Specifically we test for static market efficiency in the share prices of small and large firms, using monthly data from January 1975 to December 1989. The empirical findings provide evidence of market efficiency for portfolios of large firms but of inefficiency for small firm portfolios. These results are indicative of a small firm effect in the UK stock market.

Exchange rate exposure:do size and foreign operations matter?

Purpose – The purpose of this paper is to examine the effect of firm size and foreign operations on the exchange rate exposure of UK non-financial companies from January 1981 to December 2001. Design/methodology/approach – The impact of the unexpected changes in exchange rates on firms’ stock returns is examined. In addition, the movements in bilateral, equally weighted (EQW) and trade-weighted and exchange rate indices are considered. The sample is classified according to firm size and the extent of firms’ foreign operations. In addition, structural changes on the relationship between exchange rate changes and individual firms’ stock returns are examined over three sub-periods: before joining the exchange rate mechanism (pre-ERM), during joining the ERM (in-ERM), and after departure from the ERM (post-ERM). Findings – The findings indicate that a higher percentage of UK firms are exposed to contemporaneous exchange rate changes than those reported in previous studies. UK firms’ stock returns are more affected by changes in the EQW, and US$ European currency unit exchange rate, and respond less significantly to the basket of 20 countries’ currencies relative to the UK pound exchange rate. It is found that exchange rate exposure has a more significant impact on stock returns of the large firms compared with the small and medium-sized companies. The evidence is consistent across all specifications using different exchange rate. The results provide evidence that the proportion of significant foreign exchange rate exposure is higher for firms which generate a higher percentage of revenues from abroad. The sensitivities of firms’ stock returns to exchange rate fluctuations are most evident in the pre-ERM and post-ERM periods. Practical implications – This study provides important implications for public policymakers, financial managers and investors on how common stock returns of various sectors react to exchange rate fluctuations. Originality/value – The empirical evidence supports the view that UK firms’ stock returns are affected by foreign exchange rate exposure.

The exchange rate exposure of UK non-financial companies

Purpose – The purpose of this paper is to investigate the exchange rate exposure of UK nonfinancial companies from January 1981 to December 2001. Design/methodology/approach – The study employs different exchange rate measures and adopts an equally weighted exchange rate. The analyses are conducted at the firm level. All analyses are conducted by regressing the firm’s exchange rate exposure coefficients on its size, foreign activity variables and financial hedging proxies over the whole sample period. Findings – The findings show that a higher percentage of UK non-financial companies are exposed to exchange rate changes than those reported in previous studies. Generally, the results provide a stronger support for the suggested equally weighted rate as an economic variable, which affects firms’ stock returns. The results also show a high proportion of positive exposure coefficients among firms with significant exchange rate exposure, indicating a higher proportion of firms benefiting from an appreciation of the pound. Finally, the results also indicate evidence that firms’ foreign operations and hedging variables affect their sensitivity to exchange rate exposure. Practical implications – This study provides important implications for public policymakers who wish to understand links between policies that affect exchange rates and relative wealth effects. Originality/value – The empirical results of this study should help investors to examine how common stock returns react to exchange rate fluctuations when making financial decisions, and prove useful for financial managers when measuring exposure to foreign exchange rate changes.

Stress events in the Hungarian stock market

Central clearing and the role of central counterparties (CCP) has gained on importance in the financial sector, since counterparty risk of the trading is to be managed by them. The regulation has turned towards them lately, by defining several processes, how CCPs should measure and manage their risk. Stress situation is an important term of the regulation, however it is not specified clearly, how stress should be identified. This paper provides a possible definition of stress event based on the existing risk management methodology: the usage of risk measure oversteps, and investigates the potential stress periods of the last years on the Hungarian stock market. According to the results the definition needs further calibration based on the magnitude of the cross-sectional data. The paper examines furthermore whether stress is to be predicted from market liquidity. The connection of liquidity and market turmoil proved to be contrary to the expectations; liquidity shortage was rather a consequence, than a forecaster phenomenon in the tested period.

Essays on financial crises

This dissertation analyzes recent financial crises in developed and developing countries. The research emphasizes the effects of institutional factors on the international banking and currency crises and their output losses. ^ Chapter two examines the roles of regulation, supervision, and countries' institutional environment in determining the probability of banking crises for a panel of fifteen developed countries from 1975 to 1998. The results from a multivariate logit model indicated that countries with greater government involvement, less capital standard requirements, and lower lending limits on a single borrower are associated with a higher probability of banking crises. ^ Chapter three studies whether output loss in banking crisis differs in market-based or bank-based financial systems. Using existing banking crisis data for sixty-nine countries during 1970–1999, we investigate whether the underlying financial system affects the output loss. The results show that output losses are more serious in market-based economies than those in bank-based economies. Longer crisis duration tends to increase the output losses in banking crises. Finally, countries with deposit insurance and strict law enforcement have less output losses. ^ Chapter four uses macroeconomic and institutional measures to explain the extent of exchange rate depreciation and the decline in stock prices for emerging countries affected by the Mexican currency crisis of 1994–95. The results show that countries with more government budget deficits, and worse reserve adequacies tend to experience large exchange rate depreciation. The institutional measures do not explain much the extent of both the exchange rate depreciation and the decline in stock prices. ^

Regulation of Rab5 GTPase activity during Pseudomonas aeruginosa-macrophage interaction

Pseudomonas aeruginosa is a Gram-negative opportunistic pathogen. Several antibiotic resistant strains of P. aeruginosa are commonly found as secondary infection in immune-compromised patients leaving significant mortality and healthcare cost. Pseudomonas aeruginosa successfully avoids the process of phagocytosis, the first line of host defense, by secreting several toxic effectors. Effectors produced from P. aeruginosa Type III secretion system are critical molecules required to disrupt mammalian cell signaling and holds particular interest to the scientists studying host-pathogen interaction. Exoenzyme S (ExoS) is a bi-functional Type III effector that ADP-ribosylates several intracellular Ras (Rat sarcoma) and Rab (Response to abscisic acid) small GTPases in targeted host cells. The Rab5 protein acts as a rate limiting protein during phagocytosis by switching from a GDP- bound inactive form to a GTP-bound active form. Activation and inactivation of Rab5 protein is regulated by several Rab5-GAPs (GTPase Activating Proteins) and Rab5-GEFs (Rab5-Guanine nucleotide Exchange Factors). Some pathogenic bacteria have shown affinity for Rab proteins during infection and make their way inside the cell. This dissertation demonstrated that Rab5 plays a critical role during early steps of P. aeruginosa invasion in J774-Eclone macrophages. It was found that live, but not heat inactivated, P. aeruginosa inhibited phagocytosis that occurred in conjunction with down-regulation of Rab5 activity. Inactivation of Rab5 was dependent on ExoS ADP-ribosyltransferase activity, and more than one arginine sites in Rab5 are possible targets for ADP-ribosylation modification. However, the expression of Rin1, but not other Rab5GEFs (Rabex-5 and Rap6) reversed this down-regulation of Rab5 in vivo. Further studies revealed that the C-terminus of Rin1 carrying Rin1:Vps9 and Rin1:RA domains are required for optimal Rab5 activation in conjunction with active Ras. These observations demonstrate a novel mechanism of Rab5 targeting to phagosome via Rin1 during the phagocytosis of P. aeruginosa. The second part of this dissertation investigated antimicrobial activities of Dehydroleucodine (DhL), a secondary metabolite from Artemisia douglasiana, against P. aeruginosa growth and virulence. Populations of several P. aeruginosa strains were completely susceptible to DhL at a concentration between 0.48~0.96 mg/ml and treatment at a threshold concentration (0.12 mg/ml) inhibited growth and many virulent activities without damaging the integrity of the cell suggesting anti-Pseudomonas activity of DhL.

Putting the Green in Bureaucracy: Practices of Quantification and Valuation in Environmental Regulation

While researchers have devoted considerable attention to exploring the ways that intentional environmental reregulation creates new avenues for capital accumulation (e.g. Smith, 2007; Castree, 2008), it remains somewhat unclear how the less grandiose day-to-day work of environmental regulators may also help create new sources of ecological value. Through an ethnographic study of environmental regulators tasked with enforcing key environmental laws, I shed light on the subtle ways that rule interpretation and scientific practice structure the frames, models, and methodologies regulators use to enact “best professional judgments” about ecological systems, and ultimately to assign particular values to nature. I also show the ways that non-human nature pushes back against such assessments, which in combination with the interpretive work of environmental regulation, opens spaces of conflict in at least two arenas: one focused on modes of quantification, where actors contend between economistic, ecological, statutory, and moral frames for making value assessments; and one focused on presentations of value, where actors contend between value assessments that best represent their self-defined interests. The ‘value settlements’ environmental regulators reach in these contested spaces allow processes of commensuration to proceed, and ultimately make nature legible for capitalization and exchange. Accounting for the ways that these basic regulatory practice help create ecological value is essential for creating a fuller picture of the ways capital and natural capital relate.

The impact of maternal inflammation and maternal stress in the regulation of neurodevelopment and physiological function

The mechanisms governing fetal development follow a tightly regulated pattern of progression such that interference at any one particular stage is likely to have consequences for all other stages of development in the physiological system that has been affected thereafter. These disturbances can take the form of many different events but two of the most common and widely implicated in causing detrimental effects to the developing fetus are maternal immune activation (MIA) and maternal stress. MIA has been shown to cause an increase in circulating proinflammatory cytokines in both the maternal and fetal circulation. This increase in proinflammatory mediators in the fetus is thought to occur by fetal production rather than through exchange between the maternal-fetal interface. In the case of maternal stress it is increased levels of stress related hormones such as cortisol/corticosterone which is thought to elicit the detrimental effects on fetal development. In the case of both maternal infection and stress the timing and nature of the insult generally dictates the severity and type of effects seen in affected offspring. We investigated the effect of a proinflammatory environment on neural precursor cells of which exposure resulted in a significant decrease in the normal rate of proliferation of NPCs in culture but did not have any effect on cell survival. These effects were seen to be age dependent. Using a restraint stress model we investigated the effects of prenatal stress on the development of a number of different physiological systems in the same cohort of animals. PNS animals exhibited a number of aberrant changes in cardiovascular function with altered responses to stress and hypertension, modifications in respiratory responses to hypercapnic and hypoxic challenges and discrepancies in gastrointestinal innervation. Taken together these findings suggest that both maternal infection and maternal stress are detrimental to the normal development of the fetus.