Bund for Glory, or, it's a Long Way to Tip a Market

58 Pages Posted: 25 Feb 2005

See all articles by Craig Pirrong

Craig Pirrong

University of Houston - Department of Finance

Date Written: 2/23/2005

Abstract

Theory predicts that liquidity considerations make financial markets "tippy". In 1998, trading on Bund futures tipped from LIFFE (an open outcry exchange) to Eurex (an electronic market). Measures of spreads on LIFFE and Eurex did not change markedly in the eighteen month period over which Eurex achieved dominance in Bund futures trading, but a measure of market depth did worsen on LIFFE as tipping proceeded. The evidence suggests that trading fee differentials and operational efficiences were the key factors in preciptiating the shift in volume. The "sponsorship" of the Eurex platform by German banks narrowed liquidity cost differences sufficiently to permit Eurex to charge lower fees and thereby undercut total trading costs on LIFFE.

Keywords: market microstructure, LIFFE, Eurex

Suggested Citation

Pirrong, Craig, Bund for Glory, or, it's a Long Way to Tip a Market (2/23/2005). Available at SSRN: https://ssrn.com/abstract=672504 or http://dx.doi.org/10.2139/ssrn.672504

Craig Pirrong (Contact Author)

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States

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