Market Microstructure

Our work in this area has included numerous issues related to order handling, allegations of front running, rules involving price quoting, clearing and settlement, uncovered short sales, best execution, markups, and trade reporting.

Securities industry participants struggle to innovate and compete within an environment of constant regulatory and technological changes and ever evolving market structures. These dynamics have led to conflicts over the interpretation of rules, often manifesting in the form of regulatory investigations, disciplinary proceedings, and private litigation. Such actions have involved nationally registered securities exchanges, clearing agencies, alternative trading systems, broker-dealers, investment advisors, institutional investors, and both professional and retail traders.

Cornerstone Research has worked on a variety of matters involving market microstructure issues. These typically require analyzing large datasets of trades and prices in order to illustrate the economic rationale that may have been the reason for the issue at hand, demonstrate materiality, and estimate damages. Our work in this area has included numerous issues related to order handling, allegations of front running, rules involving price quoting, clearing and settlement, uncovered short sales, best execution, markups, and trade reporting.

We have:

  • Played a major role in many of the most prominent cases involving allegations of price fixing or collusion in financial markets, including equity, fixed income, and options markets, as well as private equity market and interest rate benchmarks;
  • Conducted market quality studies for regulators, including a report for the Securities and Exchange Commission (SEC) on the effect of short-selling regulations and the Financial Industry Regulatory Authority (FINRA) on the impact of over-the-counter quote rules;
  • Provided analyses of intraday trading data to illustrate price impact or materiality, for use in cases involving allegations of market manipulation, insufficient disclosure, insider trading, and fraud;
  • Analyzed trading records and failed delivery data for a group of large clearing firms faced with allegations of improper clearing and settlement procedures in connection with short selling in equity markets; and
  • Evaluated whether customer orders were properly executed by analyzing trades in actively traded NASDAQ securities.

High Frequency Trading

Cornerstone Research staff also has experience working on various aspects of high frequency and low latency trading, performing forensic reconstructions of market turmoil and malfunction. Our work in this area has included:

  • Analysis of a hedge fund’s high frequency trading algorithms, responding to an SEC investigation into market manipulation;
  • Reconstruction of how market malfunctions caused potential harm to incoming orders;
  • Analysis of the dissemination of market data by the New York Stock Exchange, resulting in a settlement with the SEC; and
  • Work on trade secrets cases involving alleged theft of high frequency trading algorithms.