Does Market Transparency Matter? A Case Study

CGFS Publications, No. 11, May 1999

Posted: 22 Feb 2003

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We analyse a change in the degree of transparency of MTS, the electronic inter-dealer market for Italian Treasury bonds, namely the July 1997 move to the anonymity of quotes. Our evidence supports the hypothesis that a decrease in transparency makes liquidity traders worse-off, whereas large/informed traders find it less costly to execute block trades. The evidence is also consistent with the 'waiting game' hypothesis of Foster and Viswanathan (1996): under anonymity, traders tend to delay their trades in an attempt to acquire information through the order flow. From a public welfare perspective, our results indicate that the move to anonymity has been accompanied by an increase in market liquidity and a reduction in volatility, a phenomenon that is also partly explained by the growth in Italy's prospects for early participation in the EMU. The speed of information aggregation on MTS increases, as shown by an improvement of the MTS lead over the futures market. In a European perspective, the current organisation and performance of MTS place the market in a competitive position with respect to other sovereign bond markets and may contribute to their integration under the single currency.

Keywords: Electronic trading, market efficiency

JEL Classification: G14

Suggested Citation

Scalia, Antonio and Vacca, Valerio Paolo, Does Market Transparency Matter? A Case Study. CGFS Publications, No. 11, May 1999, Available at SSRN:

Antonio Scalia (Contact Author)

Banca d'Italia ( email )

Financial Risk Management
Via Nazionale 91
Rome, 00184
+39 06 4792 3390 (Phone)

Valerio Paolo Vacca

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

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