• Mike Aitken

The arrival of big-data-assisted legal scholarship


Liquidity in small stocks has attracted increased attention in recent years. On October 3, 2016, the Securities & Exchange Commission (SEC) implemented a regulatory pilot to increase the mandated minimum tick increment from one cent (penny) to five cents (nickel) in order to assess the impact of wider ticks on market liquidity. The issue as Professor Maureen O’Hara once put it in defining liquidity “My analogy is to pornography: hard to define but you know it when you see it.

Enter the Market Quality Dashboard (MQD) a product of the Capital Markets Cooperative Research Centre (CMCRC), designed with the purpose of assisting exchanges and regulators to evaluate the impact of regulatory change on financial markets. MQD represents a revolution in quantitative scholarship and opens an emerging area of big-data-assisted legal scholarship that will have a massive impact on university research. Compared to previous financial economic work that sees users faced with the prospect of ingesting a firehose of data in order to be able to build and run their data models, the MQD provides an out of the box solution to visualize and analyse more than 100 well established metrics (emanating from the academic literature) representing concepts like liquidity, transaction costs, volatility, price discovery and information leakage for any securities markets.

So, effective is the MQD, that within 10 days of the SEC Tick Pilot launch, the CMCRC released its initial report on the pilot analysing over 50 data feeds for 1600 securities, highlighting some of the adverse consequences for liquidity in lit and inverted fee markets. MQD continues to update metrics on a daily basis, allowing CMCRC researches to concluded the increase in the minimum tick has curtailed market quality for firms that experienced a mandated 400% increase in their minimum tick, relative to those that continued to trade in penny ticks. Further the report concludes the information content of trades increased more so in maker-taker venues vis-a-vis inverted fee markets and that inverted and off-exchange venues were the major beneficiary of the tick pilot.

The MQD, has also been used to evaluate many other examples of regulation including the introduction of the Shanghai-Shenzhen-Hong Kong Stock Connect, Speed Bumps in Canada, and the introduction of Dark Pools in Canada and Australia. A summary of the key features of MQD include:

  1. A commercial data supply agreement in-built into the product at very competitive rates.

  2. Data across accounting fundamentals, analyst forecasts, security instruments (fixed income, equity, derivative) and company or economic news/actions releases is seamlessly integrated for download and/or analysis.

  3. An intuitive front-end visualisation tool which automatically displays time series data based on custom date ranges, and download data underpinning each of the series.

  4. A python based programming language/interface, called UPTICK (which can be studied online) that will allow users to select, modify data and estimate models locally or on the cloud based service.

  5. A selection of built in research frameworks including, event study analysis, identification of structural breaks, co-integration tests, control and treatment group automation, benchmarking and statistical analysis and modelling (i.e., company betas, abnormal returns), identification of market design changes and news announcements

  6. The ability to create automatic control groups to match treatment groups to enable study of particular market design changes such as the new tick size pilot in the US, assisting difference-in-difference methodology.

  7. Multi-currency conversion where markets can be compared across time on their own currency or compared to other markets using either the US dollar, the Euro or the Pound.

  8. A range of new data checking algorithms and processes, including currency conversion, corporate actions adjustments, and time zone.

  9. The ability to calculate and view metrics on an intraday and interday basis.

  10. Ingest external data, and make use of all metrics and functions.

If you would like a demonstration of the MQD, please contact Vito Mollica, Head of Market Quality (Finance) at vmollica@cmcrc.com.

Mike Aitken, Sydney


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