Voluntary Pre-Trade Anonymity and Market Liquidity

29 Pages Posted: 6 Aug 2019

See all articles by Miguel Angel Martínez

Miguel Angel Martínez

University of the Basque Country

Mikel Tapia

Universidad Carlos III de Madrid - Department of Business Administration

Date Written: August 2, 2019

Abstract

This paper analyses the effects on liquidity of voluntary pre-trade anonymity in the trading process. We confirm previous studies showing that market liquidity improves immediately after anonymous trading. Using the daily percentage of effective volume traded anonymously, we show that the anonymity-liquidity relationship presents a nonlinear U-shape. We focus on the voluntary concealment of broker identification introduced by the Spanish Stock Exchange in October 2015. We conclude that, in our sample, anonymity increases stock liquidity but at a decreasing rate; when a considerable part of the effective volume is traded anonymously, additional percentages of anonymous trading deteriorates stock liquidity.

Keywords: voluntary trader anonymity, market liquidity, pre-trade transparency

JEL Classification: G14, G15, G18

Suggested Citation

Martínez, Miguel Angel and Tapia, Mikel, Voluntary Pre-Trade Anonymity and Market Liquidity (August 2, 2019). Available at SSRN: https://ssrn.com/abstract=3430978 or http://dx.doi.org/10.2139/ssrn.3430978

Miguel Angel Martínez

University of the Basque Country ( email )

Leioa, 48940
Spain

Mikel Tapia (Contact Author)

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

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