Market Structure and Trader Anonymity: An Analysis of Insider Trading

Posted: 11 Jun 2002

See all articles by Jon A. Garfinkel

Jon A. Garfinkel

University of Iowa - Tippie College of Business

Mahendrarajah Nimalendran

University of Florida - Department of Finance, Insurance and Real Estate

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Abstract

This paper examines the degree of anonymity -- the extent to which a trader is recognized as informed or not -- on alternative market structures. We find evidence that is consistent with less anonymity on the NYSE specialist system compared to the NASDAQ dealer system. Specifically, when corporate insiders trade medium sized quantities (500-9,999 shares inclusive), NYSE listed stocks exhibit larger changes in proportional effective spreads than NASDAQ stocks. Taken together, these findings are consistent with Barclay and Warner's contention that stealth (medium sized) trades are more likely based on private information and insider trades are more transparent on the NYSE specialist system relative to the NASDAQ dealer system. The results support the hypothesis by Benveniste, Marcus and Wilhelm (1992) that the unique relationship between specialists and floor brokers on the NYSE leads to less anonymity.

Keywords: Market Structure, Anonymity, Insider Trading

JEL Classification: G1

Suggested Citation

Garfinkel, Jon A. and Nimalendran, Mahendrarajah, Market Structure and Trader Anonymity: An Analysis of Insider Trading. Forthcoming in Journal of Financial and Quantitative Analysis. Available at SSRN: https://ssrn.com/abstract=308744

Jon A. Garfinkel

University of Iowa - Tippie College of Business ( email )

108 PBB
Iowa City, IA 52242-1000
United States
319-335-0943 (Phone)
319-335-3690 (Fax)

HOME PAGE: http://www.biz.uiowa.edu/faculty/jgarfinkel

Mahendrarajah Nimalendran (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-9526 (Phone)
352-392-0301 (Fax)

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