Exchange mechanisms in financial markets.

Summary This thesis involves a study of the optimal mechanism in financial markets. The search for an optimal trading structure in these markets remains a priority for financiers. The proliferation of trading structures in the major financial centers and the free flow of capital around the world make this search a necessity for regulators and all intermediaries in the financial markets. The first chapter analyzes the problems associated with determining optimal trading structures in secondary and primary markets and presents a review of the literature on the subject. In the second chapter, a comparison is made between the two most commonly used structures, auction markets (concentrated order-driven markets) and counterparty markets (fragmented quote-driven markets). The advantages and disadvantages of each structure are determined. This comparison is made according to different measures of market performance. In this way, a hybrid structure can be identified that improves the performance of the original structures. The third chapter applies mechanism design techniques to search for optimal procedures in IPOs. This optimal procedure provides incentives for informed agents to honestly reveal their private information. Of particular interest is the question of whether this optimal procedure could be implemented by a uniform price sale or by a discriminatory price sale. The fourth and last chapter studies the problem of total surplus extraction from the informed in mechanism design theory. It proposes an analysis of this problem when the informed are risk averse and their signals are correlated. We show that Cremer and McLean's (1988) result on total surplus extraction is no longer valid when considering risk averse agents.