The Cost of Trade Execution Services in Futures Markets

26 Pages Posted: 26 Apr 2003

See all articles by Luke Gareth Bortoli

Luke Gareth Bortoli

University of Sydney Business School

Alex Frino

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Elvis Jarnecic

The University of Sydney; Financial Research Network (FIRN)

Abstract

This paper provides new evidence on the magnitude and determinants of brokerage commissions in futures markets using a sample of brokerage fees charged to transactions on the Sydney Futures Exchange. Commission fees charged on futures trades average 0.002 percent of transaction value. This is up to 120 times smaller than the magnitude of brokerage fees charged in stock markets, and considerably lower than the magnitude of brokerage fees assumed for futures markets in previous research. Consistent with existing studies based on stock markets, commissions charged per contract decrease with order size reflecting economies of scale in the provision of brokerage services in futures markets. Commission rates are positively related to bid-ask spreads and price volatility, which proxy for the probability of execution error costs and execution difficulty, respectively. The identity of the broker is a significant determinant of commissions reflecting different pricing schedules across brokers. Finally, the sample period examined in this study covered the period of transition to electronic trading on the Sydney Futures Exchange. There is strong evidence that the introduction of electronic trading is associated with lower brokerage commissions relative to floor traded markets.

Keywords: Commission rates, Brokerage, Automation, Futures

Suggested Citation

Bortoli, Luke Gareth and Frino, Alex and Jarnecic, Elvis, The Cost of Trade Execution Services in Futures Markets. Available at SSRN: https://ssrn.com/abstract=391689 or http://dx.doi.org/10.2139/ssrn.391689

Luke Gareth Bortoli (Contact Author)

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia
(612) 9256 0147 (Phone)
(612) 9299 1830 (Fax)

Alex Frino

The University of Sydney - Discipline of Finance ( email )

Futures Research Centre
P.O. Box H58
Sydney NSW
Australia
+61 2 9299 1809 (Phone)
+61 2 9299 1830 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Elvis Jarnecic

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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