The last three or four years have seen an explosion in the literature on asset markets with asymmetric information and especially on trading mechanisms, an area called the ‘microstructure of financial markets’. There are a number of reasons for this development. First, following the crash of 1987 and, more generally, given the increasing complexity of the trading environ- ment, many policy issues related to the organization of financial markets have become important. Examples of such issues include the interaction between different exchanges where the same or very closely related securities are traded, the role of designated market makers, the desirable degree of competition among market makers, the type of information which should be communicated during the trading process to various participants (e.g., what information about the trading process should become public and when, how should communication between market makers and different exchanges be structured), and so on. A number of reports issued after the stock market crash have emphasized the need to study the details of the trading process.