Chapter 6

Order-driven Markets

Order-driven markets

Most important exchanges are order-driven markets.

Most newly organized trading systems are electronic order-driven markets.

All order-driven markets use order precedence rule and trade pricing rule.

Examples of pure order-driven markets- Tokyo Stock Exchange,

- KRX (previously KSE, KOSDAQ)

- Paris Bourse,

- Toronto Stock Exchange,

- Most Future Markets,

- Most European Exchanges for equities (Milan, Barcelona, Madrid, Bilbao, Zurich,….)

Types of order-driven markets

Oral auctions

Rule-based order matching systems• Single price auctions• Continuous order book auctions• Crossing networks

In order-driven markets, trading rules specify how trades are arranged:

- order precedence rules: match buy orders with sell orders

1. Price priority2. Time precedence or time priority

- trade price rules: determine the trade price1. Uniform pricing rule (single price auction)2. Discriminatory pricing rule

Oral auctions Used by many futures, options, and stock

exchanges.• The largest example is the US government long

treasury bond futures market (CBOT, 500 floor traders).

Traders arrange their trades face-to-face on an exchange trading floor.• Cry out bids and offers (offer liquidity)• Listen for bids and offers (take liquidity)• “Take it” = accept offer• “Sold” = accept bid

Open outcry rule – the first rule of oral auctions

• Traders must publicly announce their bids and offers so that all other traders may react to them (no whispering…).

• Traders must also publicly announce that they accept bids/offers.

• Why is this necessary?

Order precedence rules • Price priority

Should a trader be allowed to bid below the best bid, above the best ask in an oral auction?

• Time precedence Is time precedence maintained for subsequent

orders at the best bid or offer? Why? Why not? How can a trader keep his bid or offer “live”? The minimum tick size is the price a trader has to

pay to acquire precedence.

• Public order precedence Why do you think this is necessary?

Trade pricing rule

• Trades take place at the price that is accepted, i.e., the bid or offer.

• Discriminatory pricing rule in oral auction.Why do you think it is called

discriminatory?

Trading floors

• Trading floors can be arranged in several rooms as on the NYSE, with each stock being traded at a specific “trading post.”

• Trading floors can also be arranged in “pits” as in the futures markets.

Rule-based order-matching systems

Used by most exchanges and almost all ECNs.

Trading rules arrange trades from the orders that traders submit to them.

No face-to-face negotiation. Most systems accept only limit orders.

• Why do you think most systems are reluctant to accept market orders?

Orders are for a specified size. Electronic trading systems process the

orders. Trades may take place in a call, or

continuously.• A new order arrival “activates” the trading

system. Systems match orders using order

precedence rules, determine which matches can trade, and price the resulting trades.

Order precedence rulesPrice priority

• Market orders always rank above limit orders.

• Limit buy orders with high prices have priority over limit buy orders with low prices

• Limit sell orders with low prices have priority over limit sell orders with high prices.

Time precedence• Under time precedence, the first order at

a given price has precedence over all other orders at that price. Gives orders precedence according to their time of submission.

• The pure price-time rule uses only price priority and time precedence.

• Floor time precedence to first order at price. All subsequent orders at that price have parity (Oral auction)

Display precedence• Why do markets use display

precedence?Size precedence

• Some markets give precedence to small orders, other markets favor large orders (NYSE).

Public order precedence • Public orders have precedence over

member orders at a given price.

Trades are arranged by matching the highest ranking buy orders with the highest ranking sell orders.

Order precedence rules are used to rank orders.

Order precedence rules vary across markets. However, the first rule is almost always price priority.

Trade pricing rules

Single price auctions use the uniform pricing rule. Most continuous order-driven markets use the discriminatory pricing rule.

All matched orders are executed at the same price.

This rule is used for opening markets in many equities markets, following trading halts for many continuous markets, and in the AZX,….

Uniform pricing rule

In a continuous market trade takes place when an incoming order is matched with a standing limit order.

Under the discriminatory pricing rule, the trade price is the limit price of the standing limit order.

Discriminatory pricing rule

Example – Pure price-time precedenceTime Trader Buy/Sell Size Price12:02 Sammy Sell 100 $20.05

12:06 Steve Sell 200 $20.06

12:15 Bern Buy 500 $20.06

12:16 Susie Sell 300 $20.08

12:20 Ben Buy 200 Infinite

12:21 Bob Buy 100 $20.08

12:24 Sandy Sell 500 $20.12

12:25 Bev Buy 500 $20.08

12:27

12:27

Bill

Seth

Buy

Sell

200

200

$20.05

$20.10

Example – the order bookSellers Buyers

Trader Size Price Size Trader

Sammy 100 $20.05 200 Bill

Steve 200 $20.06 500 Bern

$20.08 100 Bob

Susie 300 $20.08 500 Bev

Seth 200 $20.10

Sandy 500 $20.12

Infinite 200 Ben

Clearing the order book with a call at 12:30

Sellers Buyers

Trader Size Price Size Trader

Sammy 100 0 $20.05 200 Bill

Steve 200 100 0 $20.06 500 Bern

$20.08 100 Bob

Susie 300 0 $20.08 500 200 Bev

Seth 200 $20.10

Sandy 500 $20.12

Infinite 200 0 Ben

Trades in the example - call

Buyer Seller Quantity Price?

Ben Sammy 100 Infinity, $20.05

Ben Steve 100 Infinity, $20.06

Bob Steve 100 $20.08, $20.06

Bev Susie 300 $20.08

Example–the order book after the call

Sellers Buyers

Trader Size Price Size Trader

$20.05 200 Bill

$20.06 500 Bern

$20.08 200 Bev

Seth 200 $20.10

Sandy 500 $20.12

Example - What should be the price/prices?

Possibilities include:• Infinite• $20.05• $20.06• $20.08

The price/prices depends on the trade pricing rules.

What should be the price/prices?

Single price auctions use the uniform pricing rule: • Everyone gets the same price.

Continuous two-sided auctions and a few call markets use the discriminatory pricing rule.• Trades occur at different prices.

Crossing networks use the derivative pricing rule.• The price is determined by another market.

Uniform pricing rule

All trades take place at the same “market clearing price.”• The market clearing price is determined

by the last feasible trade.Matching by price priority implies that

this market clearing price is also feasible for all previously matched orders.

In Example 1, the last feasible trade is between Bev and Susie, so the market clearing price is $20.08.• Sam, Steve and Susie are happy with a

market clearing price of $20.08 since they were willing to sell at $20.08 or lower.

• Ben, Bob, and Bev are happy to with a market clearing price of $20.08 since they were willing to buy at $20.08 or higher.

If the buy and sell orders in the last feasible trade specify different prices, the market clearing price can be at either the price of the buy or the price of the sell order.

The trade pricing rules will dictate which one to use.

Supply and Demand

The single-price auction clears at the price where supply equals demand.

• At prices below the market clearing price, there is excess demand.

• At prices above the market clearing price, there is excess supply.

Single price auctions maximize the volume of trading by setting the price where supply equals demand.

• Because prices in most securities markets are discrete, there is typically excess demand or excess supply at the market clearing price.

• In the Example, what is the excess demand or supply?

The single price auction also maximizes the benefits that traders derive from participating in the auction.

• Trader surplus for a seller = the difference between the trade price and the seller’s valuation

• Trader surplus for a buyer = the difference between the buyer’s valuation and the trade price.

• Valuations are unobservable, but we may assume that they at least are linked to limit prices.

Example: Demand and Supply

$20.04

$20.05

$20.06

$20.07

$20.08

$20.09

$20.10

$20.11

$20.12

$20.13

0 300 600 900 1200 1500

SupplyDemand

Discriminatory Pricing Rule

Continuous two-sided auction markets maintain an order book.

• The buy and sell orders are separately sorted by their precedence.The highest bid and the lowest offer are

the best bid and offer respectively.

• When a new order arrives, the system tries to match this order with orders on the other side. If a trade is possible, e.g., the limit buy

order is for a price at or above the best offer, the order is called a marketable order.

If a trade is not possible, the order will be sorted into the book according to its precedence.

Discriminatory Pricing Rule

Under the discriminatory pricing rule, the limit price of the standing order dictates the price for the trade.

If the incoming order fills against multiple standing orders with different prices, trades will take place at multiple prices.

Continuous trading @12:02Sellers Buyers

Trader Size Price Size Trader

Sammy 100 $20.05

$20.06

$20.08

$20.08

$20.10

$20.12

Infinite

Continuous trading @12:06

Sellers Buyers

Trader Size Price Size Trader

Sammy 100 $20.05

Steve 200 $20.06

$20.08

$20.08

$20.10

$20.12

Infinite

Continuous trading @12:15

Sellers Buyers

Trader Size Price Size Trader

Sammy 100 0 $20.05

Steve 200 0 $20.06 500 200 Bern

$20.08

$20.08

$20.10

$20.12

Infinite

Continuous trading @12:16

Sellers Buyers

Trader Size Price Size Trader

Sammy 100 0 $20.05

Steve 200 0 $20.06 500 200 Bern

Susie 300 $20.08

$20.08

$20.10

$20.12

Infinite

Continuous trading @12:20

Sellers Buyers

Trader Size Price Size Trader

Sammy 100 0 $20.05

Steve 200 0 $20.06 500 200 Bern

Susie 300 100 $20.08

$20.08

$20.10

$20.12

Infinite 200 0 Ben

Continuous trading @12:21

Sellers Buyers

Trader Size Price Size Trader

Sammy 100 0 $20.05

Steve 200 0 $20.06 500 200 Bern

Susie 300 100 0 $20.08 100 0 Bob

$20.08

$20.10

$20.12

Infinite 200 0 Ben

Continuous trading @12:24

Sellers Buyers

Trader Size Price Size Trader

Sammy 100 0 $20.05

Steve 200 0 $20.06 500 200 Bern

Susie 300 100 0 $20.08 100 0 Bob

$20.08

$20.10

Sandy 500 $20.12

Infinite 200 0 Ben

Continuous trading @12:25

Sellers Buyers

Trader Size Price Size Trader

Sammy 100 0 $20.05

Steve 200 0 $20.06 500 200 Bern

Susie 300 100 0 $20.08 100 0 Bob

$20.08 500 Bev

$20.10

Sandy 500 $20.12

Infinite 200 0 Ben

Continuous trading @12:27

Sellers Buyers

Trader Size Price Size Trader

Sammy 100 0 $20.05 200 Bill

Steve 200 0 $20.06 500 200 Bern

Susie 300 100 0 $20.08 100 0 Bob

$20.08 500 Bev

Seth 200 $20.10

Sandy 500 $20.12

Infinite 200 0 Ben

Summary continuous tradingBuyer Seller Size Price Bid Offer

$20.05x100

$20.06x100

Bern Sammy 100 $20.05

Bern Steve 200 $20.06

$20.06x200

$20.06x200 $20.08x300

Ben Susie 200 $20.08

$20.06x200 $20.08x100

Bob Susie 100 $20.08

$20.06x200

$20.06x200 $20.12x500

$20.08x500 $20.12x500

$20.08x500 $20.10x200

Discriminatory vs. uniform pricing rules

Taking the orders as given, large impatient traders (e.g., liquidity demanders: marketable limit orders) prefer the discriminatory pricing rule (to exploit better price).

Taking the orders as given, standing limit order traders (liquidity suppliers) prefer the uniform pricing rule (to maximize surplus).

However, orders are not given.• Limit order traders tend to price their orders

more aggressively under the uniform pricing rule.

• Can you explain this prediction?• Why would large traders want to split their

orders when trading under the uniform pricing rule?

• What role can trading halts have in affecting the pricing rules?

Continuous versus call markets

The single price auction produces a larger trader surplus than the continuous auction when processing the same order flow (example).• Concentration of order flow increases

total trader surplus.• In practice, traders will not send the

same order flow to call and continuous markets.

The single price auction will typically trade a lower volume than the continuous auction.

• In our example, both trade 600 shares…• See textbook example (Table 6-7 & 6-8)

However, there is another benefit of the continuous market – it allows traders to trade when they state their demands.

Additional examples

Example 2: Batch market and surplus

Example 3: Batch and continuous: Trading volume

Continuous systemIn that case orders are arranged as soon as they arrive if

they can be matched with outstanding orders.

At 10:00, Sean submits the first order (a limit buy order with price 200 for 300 shares). As the book is empty, his order will have to wait in the order book.

At 10:02, Siobhan submits the second order (a limit sell order with price 201 for 200 shares). As the maximum price for the limit buy order is lower than the minimum price for the limit sell order, those two orders cannot be matched. As a result, the market is 200 bid for 300, 200 offered at 201. The bid-ask spread is 1.

The derivative pricing rule and crossing networks Crossing networks are the only order-

driven markets that are not auction markets.• All trades take place at a price

discovered elsewhere.Who owns prices discovered in

primary markets?• Discover how much buy and sell

volume there is at the crossing price.

• ITG’s POSIT, Instinet’s Global Instinet Crossing, and the NYSE’s After-hours Trading Session I.

Second chance at getting the closing price (4pm)

Crossing networks are call markets to which traders can submit limit orders and market orders.

• Order precedence rules determine which orders will trade after the crossing price has been announced.

POSIT runs 8 crosses per day.• Choosing a time at random in the 7 minutes

following the crossing time. Why do you think they are randomizing the

timing?• Permits traders to fill their orders at the mid-

quote, without price impact.• Crosses are completely anonymous and order

imbalances are never disclosed. Why do you think this is attractive to

traders?

Crossing networks almost invariably have excess demand or supply.• Order precedence rules.• Rationing mechanism.• Less than 10 percent of their order

volume ever crosses.• Commissions are reasonable,

1-2c/share.

Problems with derivative prices

Stale prices and well-informed traders• Crosses take place with some delay

relative to the reference price.• Between the trade and the establishment

of the reference price, news might have been released.After-hours trading at Regionals and

ECNs…• Adverse selection (well-informed

traders)

Price manipulation• Temptation to manipulate the price in

advance of the cross.• Particularly a problem in less liquid

stocks. Push prices down (up) if anticipate to

buy (sell) in the cross.• Illegal, but difficult to detect and

prosecute.

Electronic trading platforms Centralized order-driven market with

automated order routing. Decentralized computer network for

access. Member firms act as brokers or principals. No designated market makers Central limit order book/information

system/clearing and settlement Off-book trading is sometimes significant

The (limit order) book

The broker might have other limit orders besides ours. A collection of unexecuted limit orders is a “book”.

The book may have buy and sell orders. In US futures pits, each broker may have

his/her own book. In many other markets, the book is

consolidated: all unexecuted limit orders are recorded in one book.

The electronic limit order book All orders are limit orders. The book is electronically visible. “Anyone” may enter an order. There has to be some established

relationship for clearing and credit purposes. The electronic limit order book is probably

the most common form of new market organization today, but it is far from universal.

The Island ECN

Island is a limit order market Island is an Electronic Communications

Network (ECN) It has no trading floor. All orders are sent

electronically.

A likely scenario:

Seller(s), using market orders, took out the113.25 bid and the 113.00 bid, leaving 112.5 as

the best bid.

On the sell side of the book, sellers realized that113.375 was unrealistically high. They’re nowoffering at a lower price (112.95)

A survey of usage Some markets have a single consolidated

limit order book, where everything happens.

This is mostly true of the Tokyo Stock Exchange, Euronext, the Singapore Stock Exchange, the Taiwan Stock Exchange, etc., etc.

Other markets are fragmented.

There are multiple limit order books in different physical venues (or computers).

In addition to the Island ECN, there is a limit order book for IBM at the New York Stock Exchange, the Boston Stock Exchange, the Pacific Stock Exchange, etc., etc.

The largest (deepest) limit order book for IBM is at the NYSE.

Different markets/different solutions

The pit markets in US futures exchanges do not have a centralized limit order book.

The Chicago Board Options Exchange does have a centralized book (run by a clerk).

The NYSE has a limit order book, run by the specialist. (But there are other books in NYSE-listed stocks on regional exchanges and other dealers.)

NASDAQ has multiple books.

Terminology

A centralized limit order book is often referred to as a “CLOB” (pron. kl.b)

Hard CLOB: All activity is forced (by law) through the book.

Soft CLOB: A CLOB exists, but trades can take place outside of it.

ECN 의 개념 대체거래시스템 (Alternative Trading System: ATS) 의 일종으로 ECN(Electronic Communications Network) 은 컴퓨터 네트워크를 활용하여 인터넷을 기반으로 주식을 매매 , 거래소시장의 기능을 수행하는 대체증권시장 또는 사이버 ( 온라인 ) 증권시장입니다 . 한국증권시장에서의 ECN 이란 “정규의 증권시장 이외의 장소에서 유가증권 ( 주식 ) 의 매매를 중개하는 전자장외증권거래시스템”을 의미합니다 .

장외시장의 한 형태로서 자율규제의 기능을 갖는 거래소가 아니므로 증권거래소 또는 증권시장이라는 명칭의 사용이 거래법에 의해 금지된 ECN 은 대체거래시스템인 ATS(Alternative Trading System) 와 구분되는 개념이기는 하나 국제적으로는 증권시장의 기능을 수행하는 대체증권시장을 ECN 또는 ATS 로 혼용하여 사용하고 있습니다 .

ECN 의 등장배경 - 해외

ECN 은 1969 년 미국의 Institutional Network 사가 전자거래시스템인 Instinet 을 설립한 것으로부터 유래하고 있습니다 . 초기 Instinet 의 설립목적은 기관투자자들이 전자단말기를 통하여 거래소외에서 상호간 주식을 직접거래하기 위한 것이었습니다 . Instinet 출범 이후 ECN 이 급격하게 성장하게된 계기는 인터넷을 통한 주식거래의 급증과 주문처리규정 (Order Handling Rule:OHR) 의 제정과 같은 제도적 뒷받침이라고 할 수 있습니다 .

기존의 Nasdaq 이 호가주도형 딜러시장으로서 마켓메이커에 의한 시장분할 구조문제를 가지고 있었기에 , ECN 은 이러한 제도적 장치를 통해 Nasdaq 거래량의 약 35.3%(2002 년 2 월말 기준 ) 를 차지하는 시장으로 성장하였습니다 .

ECN 의 등장배경 - 국내 1997 년 IMF 관리체제 이후 경제위기의 방지대책으로서 정부는

경제구조에 대한 전반적인 검토를 하게 되었고 , 이에 따른 금융산업 전반의 제도적 개선과 규제완화등이 이루어졌습니다 . 그 중에서도 증권시장에 대해서는 2001 년 3 월 28 일 증권거래법 개정을 통하여 시장진입장벽을 완화하고 새로운 형태의 증권거래시스템의 발전을 도모하며 국제간 증권거래의 활성화를 위한 방안으로 ECN제도를 도입하게 되었습니다 ( 증권거래법 제 2 조제 8 항제 8 호 ).

ECN 제도의 도입이후 , 한국 최초의 ECN 을 설립하기 위해 국내 유수의 증권사들이 출자한 한국 ECN 컨설팅㈜가 2001 년 6 월 1 일 설립되었고 , 2001 년 12 월 14 일 증권회사로서 금융감독위원회의 허가를 얻어 한국 ECN 증권㈜로 개명하여 , 12 월 27 일에 역사적인 전자장외증권거래 업무를 시작하게 되었습니다 .

Closed on May 28, 2005

임의체결 (Random end) 방식이란 ? 임의체결방식이란 일정한 구간 (window, 5 분 ) 내에서

고정된 체결시각이 아닌 난수발생에 의해서 임의로 결정된 체결시각에 체결이 한번 발생하는 방식 .

임의체결 (Random end) 방식은 단일가매매시에 발생할 수 있는 허수호가를 효과적으로 방지하기 위하여 , 미국 , 영국 그리고 독일등의 선진증권시장에서 사용중인 제도 .

정확한 체결시점을 투자자가 알지 못함으로써 허수호가의 입력 및 시세조작의 개연성을 미연에 방지할 수 있으며 , 5 분간의 체결구간 내에서 난수발생을 통해 체결시각을 결정 .

체결구간

1 차 체결오후 4 시 55 분 ~5 시 00 분 2 차 체결오후 5 시 25 분 ~5 시 30 분 3 차 체결오후 5 시 55 분 ~6 시 00 분 4 차 체결오후 6 시 25 분 ~6 시 30 분 5 차 체결오후 6 시 55 분 ~7 시 00 분 6 차 체결오후 7 시 25 분 ~7 시 30 분 7 차 체결오후 7 시 55 분 ~8 시 00 분 8 차 체결오후 8 시 25 분 ~8 시 30 분 9 차 체결 ( 장종료 ) 오후 8 시 55 분 ~9 시 00 분

거래시간은 오후 4 시 30 분부터 장종료시점 . 장종료시점은 임의체결방식의 특성상 일정한

시각에 고정되어 있지 않기 때문에 5 분간의 체결구간 ( 오후 8 시 55 분 ~9 시 00 분 )내에서 유동적 .

호가접수는 오후 4 시 30 분부터 시작하며 , 첫번째 체결은 오후 4 시 55 분 ~5 시 00 분 사이에 이루어 집니다 .

체결우선원칙

시장원칙에 입각하여 가격우선원칙과 시간우선원칙만을 적용 .

매도 · 수 주문간에는 유리한 가격의 주문이 선행하며 , 동일한 가격간에는 시간우선원칙이 적용되며 상 · 하한가인 경우에도 적용 .

지정가주문이란 투자자가 종목이나 수량 및 가격을 지정하여 주문을 내는 것으로 지정한 가격 또는 그 가격보다 유리한 가격으로 체결가격이 결정될 때에만 해당주문이 체결이 되는 주문 . 지정가주문과 그에 상응하는 정정 , 취소주문만이 가능 .

ECN 거래대상종목

현재 거래소의 KOSPI 200 구성종목과 코스닥의 KOSDAQ 50 구성종목 - 총 250종목 - 을 거래대상종목으로 하고 있으며 , 이들 거래대상종목들 중에서 거래소 및 코스닥에서 거래정지가 된 종목은 제외됩니다 . 한국ECN 증권㈜의 거래시간 중 투자자보호를 위해서 필요할 경우에는 ECN 업무규정 제 50 조에 의거하여 장중 매매거래정지를 취할 수 있습니다 .

Close of ECN – May 28, 2005

지난 2001 년 개설 추진 당시는 개인 직접투자가 활발한 한국시장의 특성상 활성화되리라는 기대가 컸지만 만성적 거래부진에 시달리며 누적적자가 130억원 .

지난 2001 년 말 개설된 장외전자거래시장 (ECN) 이 지난 28일로 문을 닫고 이 업무를 증권선물거래소가 넘겨받아 30 일부터 시간외 거래를 오후 6 시까지 연장하는 형태로 운영 .

기존 ECN 시장과 마찬가지로 30 분 단위로

체결되는 단일가 매매제도가 적용 .

시간외거래

기존 ECN 시장이 원칙적으로 10 주 단위 거래인 반면 시간외 거래는 1 주씩인 점 , 기존 ECN 에서는 KOSPI200 과 KOSDAQ50 편입종목으로 거래가 제한됐지만 시간외 거래에서는 전 종목 거래가 가능 .

시간은 차이…구조는 비슷 = 기존 ECN 이

오후 4 시 30 분∼ 9 시에 매매가 이뤄졌다면 새 시간외 매매제도는 오후 3 시 30 분∼ 6시에 매매가 이뤄진다 .

정규시장 종가에서 원칙적으로 ±5% 범위내에서 가격변동을 허용한다는 점과 허수성 호가방지를 위해 ' 랜덤 엔드 '제도를 적용하고 있는 점도 같다 .

기존 장외전자거래시장 (ECN) 의 기능을 흡수하기 위해 도입된 ‘시간외 단일가매매거래’가 기존 거래액의 4 배에 이르는 등 급증 .

증권선물거래소가 지난 5 월 30 일 도입한 시간외 단일가매매의 1 개월간 실적을 분석한 결과 , 시간외 매매의 거래대금은 기존 하루 평균 14 억원 (ECN) 에서 58억원으로 무려 315% 가 늘었다 .

거래종목도 종전 ( 하루 평균 기준 ) 99개에서 413 개로 317% 가 늘었고 , 거래량도 24 만주에서 152 만주로 529%가 증가 . 투자자 ( 계좌 기준 ) 도 하루 1930 명에서 5914 명으로 늘었으며 , 이 가운데 외국인 투자자 비중이 10.8% 에 이르는 등 범위도 확대 .

매매가격은 유가증권시장에선 48.9%, 코스닥시장에선 43.1% 가 종가로 결정돼 , 가격형성도 비교적 안정적인 것으로 나타났다 .

이는 시간외매매시장이 정규시장 종료후 투자자의 거래수요를 수용하고 , 거래소의 시장운영에 대한 투자자의 신뢰 증대에서 비롯됐다는 게 거래소측의 설명 .

Limit order books: The problem areas Electronic limit order books are the

predominant continuous trading mechanism.

They do not seem to work well, however, in all circumstances. These include large trades, low activity securities and market breaks (“crashes”)

In these circumstances, some sort of active marketmaking presence (a dealer) seems to be necessary.