Trading Systems and Liquidity on Securities Markets: A Study of the European Options Exchange

Posted: 3 May 2000

See all articles by Henk Berkman

Henk Berkman

University of Auckland - Business School

Abstract

All securities markets share the goal of providing a cost effective and liquid market. Despite this common goal, it is observed that there are substantial differences in trading systems across markets. Furthermore, under pressure of increased competition, dramatic changes in the trading systems of some exchanges have taken place during the last decade. Examples are the "Big Bang" on the London Stock Exchange in 1986 and the changes on the Paris Bourse since 1986. The purpose of this dissertation is to contribute to the understanding of the effect of a market's design on the liquidity it provides. Central in the study is the dealer/auction trading system that is used on the European Options Exchange (EOE). This trading system is used on several other securities markets (for example the New York Stock Exchange, The Chicago Board Options Exchange and the Deutsche Termin Borse) and is expected to become even more important in the near future. In a dealer/auction trading system, liquidity is supplied by market makers and public investors submitting limit orders. Both groups of traders are willing to take the opposite side of a trade that is initiated by someone else (the demander of liquidity).

JEL Classification: G10

Suggested Citation

Berkman, Henk, Trading Systems and Liquidity on Securities Markets: A Study of the European Options Exchange. International Review of Financial Analysis Volume 3, Number 1, 1994. Available at SSRN: https://ssrn.com/abstract=5377

Henk Berkman (Contact Author)

University of Auckland - Business School ( email )

Private Bag 92019
Room: 577
Auckland
New Zealand
(64 9) 3737599 Ext. 7181 (Phone)
(64 9) 3737406 (Fax)

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