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Financial Exchanges

Procedural Fairness in Exchange Matching Systems

Journal of Business Ethics, 2023, 188: 367-377.

The move from open outcry to electronic trading added another responsibility to futures exchanges—that of matching orders between buyers and sellers. Matching systems can affect the level and speed of price discovery, the distribution of revenue, as well as the level of price efficiency of a given market. Whether the matching system is procedurally fair is another important consideration. I argue that while FIFO (First In First Out) is a fair procedure in principle and is perceived as the default matching system, it is not a fair procedure in practice. Likewise, while pro rata is a fair procedure in principle, it is not so in practice. Nevertheless, both FIFO and pro rata are relics of an open outcry system. Instead, I propose an alternative approach to matching systems that builds on the strengths of electronic trading—the ability to randomize in real-time. I introduce random selection for service (RSS) as a matching system that is procedurally fair both in principle and in practice.

Penultimate draft

You Can Bluff but You Should Not Spoof

Business and Professional Ethics Journal (2020), 39(2): 207-224.

Spoofing is the act of placing orders to buy or sell a financial contract without the intention to have those orders fulfilled in order to create the impression that there is a large demand for that contract at that price. In this article, I deny the view that spoofing in financial markets should be viewed as morally permissible analogously to the way bluffing is permissible in poker. I argue for the pro tanto moral impermissibility of spoofing and make the case that spoofing is disanalogous from bluffing in at least one important regard—speculative trading serves an important economic role, whereas poker does not.

Penultimate draft

The Irrelevance of Unsuccessful Traders

Business Ethics Journal Review (2018), 6(8): 41-46.

Alasdair MacIntyre argues that moral virtues are antithetical to what is required of those who trade in financial markets to succeed. MacIntyre focuses on four virtues and argues that successful traders possess none of them: (i) self-knowledge, (ii) courage, (iii) taking a long-term perspective, and (iv) tying one’s own good with some set of common goods. By contrast, I argue that (i-iii) are, in fact, traits of successful traders, regardless of their normative assessment. The last trait—caring about the common good—is often counterproductive in most for-profit ventures, including trading, and so singling out traders is inappropriate.

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