In stock market the auctions with participation of specialists and in the exchange market – with participation of dealers are integrated with bigger price stability than the auctions of automatic electronic systems. It at all doesn’t mean that it is necessary to change the settled market structure of the domestic exchange market.
However during the periods of high volatility of currency exchange rate, in my opinion, it makes sense to perform switching of a mode of the auctions with automatic matching on bilateral trade with prices-makers that is provided by rules of carrying out of operations on bid or ask foreign exchange on the Stock Exchange Market.
For prices-makers, probably, followed soften rates of currency adjustment. At once it is necessary to notice that open participation of the monetary authorities in the currency auctions doesn’t contradict market principles. Public currency interventions are welcomed by the international practice. In such operations there is no also a shade of administrative adjustment as are absent characteristic for its direct prohibition, quantitative limitation or procedure of official approval.
In case of origin of threat of a currency crisis, probably, it makes the sense to leave in the market only one price-maker. Switching between modes of the auctions will allow achieving more effective and stable functioning of the exchange market.
First, during the auctions with participation of prices-makers market warrants provides low volatility of currency exchange rate prevail. Secondly, the competition of prices-makers among themselves allows holding narrow spreads and raises liquidity of the market. Thirdly, the market of prices-makers, in comparison with automatic electronic trading is less transparent as the preliminary trading information. Information closeness of the auctions will lower probability of “gregarious” behavior of traders which provokes currency crises.
How the mechanism of “gregarious” behavior works? Formally it is described by the theory of information cascades. According to this theory, the behavior of traders leans against actual supervision of actions of other traders therefore the well-known macroeconomic information doesn’t play some crucial role. We will assume that each trader possesses some information concerning state of the economy and solves consistently and publicly, whether to hold internal currency or to sell it.
If it will appear so that the first on the basis of the analyzed information will decide to sell traders, (n+1) the trader can ignore own information even if it is positive, and to sell, leaning against the open information of those who were before it. This rule of consecutive decision making leads to “gregarious” behavior.
Traders of the exchange market, more likely, will do that other traders make rather than to act independently on the basis of own analysis. Thus, information closeness can be favorable from the point of view of provision of currency stability. As it is possible to conclude, transparent financial markets possess smaller liquidity and greater volatility of the prices at the expense of “gregarious” behavior, than closed markets.
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