We study consequences of regulatory interventions in limit order markets that aim atudstabilizing the market after an occurrence of a “flash crash”. We use a simulation platformudthat creates random arrivals of trade orders, that allows us to analyze subtle theoreticaludfeatures of liquidity and price variability under various market structures. The simulationsudare performed under continuous double-auction microstructure, and under alternatives,udincluding imposing minimum resting times, shutting off trading for a period of time,udand switching to call auction mechanisms. We find that the latter is the most effectiveudin restoring the liquidity of the book and recovery of the price level. However, one hasudto be cautious about possible consequences of the intervention on the traders’ strategies,udincluding an undesirable slowdown of a convergence to a new equilibrium after a changeudin fundamentals.
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