This article is about transparency in financial markets. For other uses, see transparency (behaviour).
In economics, a market is transparent if much is known by many about: What products and services or capital assets are available, market depth (quantity available), what price, and where. Transparency is important since it is one of the theoretical conditions required for a free market to be efficient. Price transparency can, however, lead to higher prices. For example, if it makes sellers reluctant to give steep discounts to certain buyers (e.g. disrupting price dispersion among buyers), or if it facilitates collusion, and price volatility is another concern.[1] A high degree of market transparency can result in disintermediation due to the buyer's increased knowledge of supply pricing.
There are two types of price transparency: 1) I know what price will be charged to me, and 2) I know what price will be charged to you. The two types of price transparency have different implications for differential pricing.[2] A transparent market should also provide necessary information about quality and other product features,[3] although quality can be exceedingly difficult to estimate for some goods, such as artworks.[4]
While the stock market is relatively transparent, hedge funds are notoriously secretive. Researchers in this area have found concerns by hedge funds about the crowding out of their trades through transparency and undesirable effects of incomplete transparency.[5] Some financial professionals, including Wall Street veteran Jeremy Frommer are pioneering the application of transparency to hedge funds by broadcasting live from trading desks and posting detailed portfolios online.[citation needed]
There is a rich literature in accounting that takes a critical perspective to market transparency, focusing on the nuances and boundaries.[6][7] For example, some researchers question its utility (e.g. Etzioni[8]). This also connects to the performativity of quantitative models[9] or "reactivity."[10] Specific cases include transparency in the art market.[11] There are also studies from finance that note concerns with market transparency, such as perverse effects including decreased market liquidity and increased price volatility.[1] This is one motivation for markets that are selectively transparent, such as "dark pools".[12]
Dynamics of transparency may also differ between investment markets, cambist markets where goods trade without being used up,[13][14] and other types of markets, e.g. goods and services.
In fair value accounting (FVA), transparency may be complicated by the fact that level 2 and 3 assets cannot strictly be marked-to-market, given that no direct market exists, creating questions about what transparency means for these assets. Level 2 assets may be marked-to-model, a topic of interest in the social studies of finance,[15][9] while Level 3 assets may require inputs including management expectations or assumptions.
There are few markets that require the level of privacy, honesty, and trust between its participants as the Forex (FX) market. This creates great obstacles for traders, investors, and institutions to overcome as there is a lack of transparency, leading to the need to develop trust with trading partners and developing these relationships through social means, such as "gifts of information," which is even seen on the trading floors of global investment banks that service institutional investors.[13]
With little to no transparency, trader's ability to verify transactions becomes virtually impossible, at least if one does not have faith that the market exchange is operating in a well-run fashion, a problem that is unlikely with the major brokerage services open to institutional investors (e.g. Reuters, Bloomberg, and Telerate). In a situation with a problematic market exchange lacking transparency, there would be no trust between the client and the broker, yet surprisingly, there is nonetheless demand to trade in dark pools.[12]
This has also become an area of financial innovation.
Forex markets are now also a target for new blockchain innovations, which would allow trading outside of centralized exchanges or change the way these exchanges operate.[16][17]
^ abMadhavan, Ananth; Porter, David; Weaver, Daniel (2005-08-01). "Should securities markets be transparent?". Journal of Financial Markets. 8 (3): 265–287. CiteSeerX10.1.1.201.6264. doi:10.1016/j.finmar.2005.05.001.
^Kyle, Margaret K.; Ridley, David B. (1 September 2007). "Would Greater Transparency And Uniformity Of Health Care Prices Benefit Poor Patients?". Health Affairs. 26 (5): 1384–1391. doi:10.1377/hlthaff.26.5.1384. PMID 17848449.
^"Dictionary of Finance and Banking - Oxford Reference". Retrieved 2017-02-06.
^Yogev, Tamar (2010-07-01). "The social construction of quality: status dynamics in the market for contemporary art". Socio-Economic Review. 8 (3): 511–536. doi:10.1093/ser/mwp030. ISSN 1475-1461. S2CID 153927678.
^Felix Goltz; Schröder, David (2010-04-01). "Hedge Fund Transparency: Where Do We Stand?". The Journal of Alternative Investments. 12 (4): 20–35. doi:10.3905/jai.2010.12.4.020. S2CID 16137828.
^Strathern, Marilyn (2000-06-01). "The Tyranny of Transparency". British Educational Research Journal. 26 (3): 309–321. doi:10.1080/713651562. ISSN 1469-3518.
^Best, Jacqueline (2005-02-10). The Limits of Transparency: Ambiguity and the History of International Finance. Cornell Studies in Money. Ithaca, NY: Cornell University Press. ISBN9780801473777.
^Etzioni, Amitai (2010-12-01). "Is Transparency the Best Disinfectant?". Journal of Political Philosophy. 18 (4): 389–404. doi:10.1111/j.1467-9760.2010.00366.x. ISSN 1467-9760.
^ abMacKenzie, Donald; Millo, Yuval (2003-07-01). "Constructing a Market, Performing Theory: The Historical Sociology of a Financial Derivatives Exchange". American Journal of Sociology. 109 (1): 107–145. CiteSeerX10.1.1.461.4099. doi:10.1086/374404. ISSN 0002-9602. S2CID 145805302.
^McGivern, Gerry; Fischer, Michael D. (2012-02-01). "Reactivity and reactions to regulatory transparency in medicine, psychotherapy and counselling" (PDF). Social Science & Medicine. Part Special Issue: Organization studies and the analysis of health systems. 74 (3): 289–296. doi:10.1016/j.socscimed.2011.09.035. PMID 22104085.
^Coslor, Erica (2016-04-01). "Transparency in an opaque market: Evaluative frictions between "thick" valuation and "thin" price data in the art market". Accounting, Organizations and Society. 50: 13–26. doi:10.1016/j.aos.2016.03.001. hdl:11343/113919.
^ abPitluck, Aaron Z. (2011-02-01). "Distributed execution in illiquid times: an alternative explanation of trading in stock markets". Economy and Society. 40 (1): 26–55. doi:10.1080/03085147.2011.529333. ISSN 0308-5147. S2CID 153650371.
^ abKnorr Cetina, Karin; Bruegger, Urs (2002-01-01). "Global Microstructures: The Virtual Societies of Financial Markets". American Journal of Sociology. 107 (4): 905–950. CiteSeerX10.1.1.335.2243. doi:10.1086/341045. ISSN 0002-9602. S2CID 13742201.
^MacKenzie, Donald; Spears, Taylor (2014-02-06). "'The formula that killed Wall Street': The Gaussian copula and modelling practices in investment banking" (PDF). Social Studies of Science. 44 (3): 393–417. doi:10.1177/0306312713517157. hdl:20.500.11820/3095760a-6d7c-4829-b327-98c9c28c1db6. PMID 25051588. S2CID 15907952.
^"Understanding How Blockchain Works and Why it Will Transform FX | Finance Magnates". Finance Magnates | Financial and business news. 2016-12-30. Retrieved 2017-06-21.
^Stafford, Philip (18 December 2016). "ICAP looks to process forex trades on blockchain". Financial Times. Archived from the original on 2022-12-10.
January 20, 2023
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This article is about transparency in financial markets For other uses see transparency behaviour In economics a market is transparent if much is known by many about What products and services or capital assets are available market depth quantity available what price and where Transparency is important since it is one of the theoretical conditions required for a free market to be efficient Price transparency can however lead to higher prices For example if it makes sellers reluctant to give steep discounts to certain buyers e g disrupting price dispersion among buyers or if it facilitates collusion and price volatility is another concern 1 A high degree of market transparency can result in disintermediation due to the buyer s increased knowledge of supply pricing There are two types of price transparency 1 I know what price will be charged to me and 2 I know what price will be charged to you The two types of price transparency have different implications for differential pricing 2 A transparent market should also provide necessary information about quality and other product features 3 although quality can be exceedingly difficult to estimate for some goods such as artworks 4 While the stock market is relatively transparent hedge funds are notoriously secretive Researchers in this area have found concerns by hedge funds about the crowding out of their trades through transparency and undesirable effects of incomplete transparency 5 Some financial professionals including Wall Street veteran Jeremy Frommer are pioneering the application of transparency to hedge funds by broadcasting live from trading desks and posting detailed portfolios online citation needed Contents 1 Critical transparency 2 In the Forex market 3 See also 4 ReferencesCritical transparency EditThere is a rich literature in accounting that takes a critical perspective to market transparency focusing on the nuances and boundaries 6 7 For example some researchers question its utility e g Etzioni 8 This also connects to the performativity of quantitative models 9 or reactivity 10 Specific cases include transparency in the art market 11 There are also studies from finance that note concerns with market transparency such as perverse effects including decreased market liquidity and increased price volatility 1 This is one motivation for markets that are selectively transparent such as dark pools 12 Dynamics of transparency may also differ between investment markets cambist markets where goods trade without being used up 13 14 and other types of markets e g goods and services In fair value accounting FVA transparency may be complicated by the fact that level 2 and 3 assets cannot strictly be marked to market given that no direct market exists creating questions about what transparency means for these assets Level 2 assets may be marked to model a topic of interest in the social studies of finance 15 9 while Level 3 assets may require inputs including management expectations or assumptions In the Forex market EditMain article Foreign exchange market There are few markets that require the level of privacy honesty and trust between its participants as the Forex FX market This creates great obstacles for traders investors and institutions to overcome as there is a lack of transparency leading to the need to develop trust with trading partners and developing these relationships through social means such as gifts of information which is even seen on the trading floors of global investment banks that service institutional investors 13 With little to no transparency trader s ability to verify transactions becomes virtually impossible at least if one does not have faith that the market exchange is operating in a well run fashion a problem that is unlikely with the major brokerage services open to institutional investors e g Reuters Bloomberg and Telerate In a situation with a problematic market exchange lacking transparency there would be no trust between the client and the broker yet surprisingly there is nonetheless demand to trade in dark pools 12 This has also become an area of financial innovation Forex markets are now also a target for new blockchain innovations which would allow trading outside of centralized exchanges or change the way these exchanges operate 16 17 See also EditCompetition regulator Consumer organization Consumer protection Efficient market Extractive Industries Transparency Initiative or EITI Information International Sugar Organization Market anomaly Shell corporation Transfer pricing Transparency behavior Underground economy Valuation finance References Edit a b Madhavan Ananth Porter David Weaver Daniel 2005 08 01 Should securities markets be transparent Journal of Financial Markets 8 3 265 287 CiteSeerX 10 1 1 201 6264 doi 10 1016 j finmar 2005 05 001 Kyle Margaret K Ridley David B 1 September 2007 Would Greater Transparency And Uniformity Of Health Care Prices Benefit Poor Patients Health Affairs 26 5 1384 1391 doi 10 1377 hlthaff 26 5 1384 PMID 17848449 Dictionary of Finance and Banking Oxford Reference Retrieved 2017 02 06 Yogev Tamar 2010 07 01 The social construction of quality status dynamics in the market for contemporary art Socio Economic Review 8 3 511 536 doi 10 1093 ser mwp030 ISSN 1475 1461 S2CID 153927678 Felix Goltz Schroder David 2010 04 01 Hedge Fund Transparency Where Do We Stand The Journal of Alternative Investments 12 4 20 35 doi 10 3905 jai 2010 12 4 020 S2CID 16137828 Strathern Marilyn 2000 06 01 The Tyranny of Transparency British Educational Research Journal 26 3 309 321 doi 10 1080 713651562 ISSN 1469 3518 Best Jacqueline 2005 02 10 The Limits of Transparency Ambiguity and the History of International Finance Cornell Studies in Money Ithaca NY Cornell University Press ISBN 9780801473777 Etzioni Amitai 2010 12 01 Is Transparency the Best Disinfectant Journal of Political Philosophy 18 4 389 404 doi 10 1111 j 1467 9760 2010 00366 x ISSN 1467 9760 a b MacKenzie Donald Millo Yuval 2003 07 01 Constructing a Market Performing Theory The Historical Sociology of a Financial Derivatives Exchange American Journal of Sociology 109 1 107 145 CiteSeerX 10 1 1 461 4099 doi 10 1086 374404 ISSN 0002 9602 S2CID 145805302 McGivern Gerry Fischer Michael D 2012 02 01 Reactivity and reactions to regulatory transparency in medicine psychotherapy and counselling PDF Social Science amp Medicine Part Special Issue Organization studies and the analysis of health systems 74 3 289 296 doi 10 1016 j socscimed 2011 09 035 PMID 22104085 Coslor Erica 2016 04 01 Transparency in an opaque market Evaluative frictions between thick valuation and thin price data in the art market Accounting Organizations and Society 50 13 26 doi 10 1016 j aos 2016 03 001 hdl 11343 113919 a b Pitluck Aaron Z 2011 02 01 Distributed execution in illiquid times an alternative explanation of trading in stock markets Economy and Society 40 1 26 55 doi 10 1080 03085147 2011 529333 ISSN 0308 5147 S2CID 153650371 a b Knorr Cetina Karin Bruegger Urs 2002 01 01 Global Microstructures The Virtual Societies of Financial Markets American Journal of Sociology 107 4 905 950 CiteSeerX 10 1 1 335 2243 doi 10 1086 341045 ISSN 0002 9602 S2CID 13742201 Cetina Karin Knorr Bruegger Urs 2002 12 01 Traders Engagement with Markets Theory Culture amp Society 19 5 6 161 185 doi 10 1177 026327602761899200 ISSN 0263 2764 S2CID 18812736 MacKenzie Donald Spears Taylor 2014 02 06 The formula that killed Wall Street The Gaussian copula and modelling practices in investment banking PDF Social Studies of Science 44 3 393 417 doi 10 1177 0306312713517157 hdl 20 500 11820 3095760a 6d7c 4829 b327 98c9c28c1db6 PMID 25051588 S2CID 15907952 Understanding How Blockchain Works and Why it Will Transform FX Finance Magnates Finance Magnates Financial and business news 2016 12 30 Retrieved 2017 06 21 Stafford Philip 18 December 2016 ICAP looks to process forex trades on blockchain Financial Times Archived from the original on 2022 12 10 Retrieved from https en wikipedia org w index php title Transparency market amp oldid 1129204052, wikipedia, wiki, book, books, library,
