Electronic Markets and Floor Markets: Competition for Trading Volumes in Futures and Options Exchanges

20 Pages Posted: 15 Oct 2008

See all articles by Hugues Levecq

Hugues Levecq

Hong Kong University of Science & Technology (HKUST) - Department of Information & Systems Management

Bruce W. Weber

City University of New York (CUNY) - Baruch College

Date Written: June 1995

Abstract

The internationalization of financial markets and the increasing demand for risk management products have fueled the growth of derivatives markets. While most exchanges have experienced increasing volumes over recent years, the pace of growth varies widely across exchanges, and the established marketplaces face increasing competitive pressures. In this paper, we investigate whether the trading mechanism offered to derivatives investors influences growth in market volumes. In particular,we distinguish between manual open outcry and electronic trading. In a floor market, traders gather in a pit and announce their orders. They complete trades using acombination of hand signals and eye contact. In an electronic market, orders a resubmitted to a central order book, and trades are created according to a matching algorithm. Using volume data from 1990-1994 for futures and options exchanges worldwide, we compute growth rates for the largest contracts and find that contracts traded in screen-based exchanges have experienced faster growth than those traded inmanual markets. We discuss several interpretations of the data, but conclude that electronic exchanges are developing a competitive advantage.

Suggested Citation

Levecq, Hugues and Weber, Bruce W., Electronic Markets and Floor Markets: Competition for Trading Volumes in Futures and Options Exchanges (June 1995). NYU Working Paper No. 2451/14227, Available at SSRN: https://ssrn.com/abstract=1284844

Hugues Levecq (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Information & Systems Management

Clear Water Bay, Kowloon
Hong Kong

Bruce W. Weber

City University of New York (CUNY) - Baruch College

17 Lexington Avenue
New York, NY 10010
United States

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