The Relation Between Market Liquidity and Anonymity in the Presence of Tick Size Constraints |
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| Authors: | Christine Brown Astrophel Kim Choo Sean Pinder |
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| Institution: | 1. Christine Brown is with the Department of Accounting and Finance, Monash University, Caulfield East, Victoria, Australia;2. Astrophel Kim Choo is with the Department of Finance and Decision Sciences, Hong Kong Baptist University, Kowloon Tong, Hong Kong;3. Sean Pinder is with the Department of Finance, The University of Melbourne, Parkville, Victoria, Australia |
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| Abstract: | In February 2004, the Sydney Futures Exchange removed broker identifiers from the electronic limit order book for interest rate futures contracts, with the stated objective of maintaining transparency and improving market participation and liquidity. We show how the Exchange's aims were generally met by documenting an increase in volume and frequency of trades and a decline in time‐weighted quoted spreads. Although daily effective spreads do not decline, intraday analysis demonstrates that there are improvements in effective spreads which are concentrated to those points in time where the bid–ask spread is not constrained by the size of the minimum tick, and where information asymmetries are present. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark 34:56–73, 2014 |
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