Off-Market Block Trades: New Evidence on Transparency and Information Efficiency

Abstract

This paper examines the price impact of off-market block trades in futures markets. Consistent with previous literature based on stock markets [Gemmill, 1996, Journal of Finance], a statistically significant price reaction is documented around the time that the trades are executed. This paper extends previous work by documenting a further statistically significant price reaction at the time that block trades are later reported. Contrary to previous research, these findings imply that delaying the reporting of off-market trades has an impact on markets by delaying the speed of adjustment to the information conveyed by block trades and therefore market price efficiency.

Note: This Research is funded by the ASX under Corporations regulation 7.5.88 through the use of excess funds from the Sydney Futures Exchange Fidelity Fund.

Keywords: Block trades, market microstructure, futures markets, market efficiency

JEL Classification: C73, D81, G13