The Impact of Limit Order Anonymity on Liquidity: Evidence from Paris, Tokyo and Korea

25 Pages Posted: 2 May 2005

See all articles by Carole Comerton-Forde

Carole Comerton-Forde

UNSW Business School; Financial Research Network (FIRN)

Alex Frino

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

Vito Mollica

Macquarie Graduate School of Management; Capital Markets CRC Limited (CMCRC); Macquarie University, Macquarie Business School

Date Written: March 2005

Abstract

This paper examines the impact of broker anonymity on bid-ask spreads in order driven markets. Previous theoretical research predicts that limit order anonymity results in deeper and more liquid markets. This paper examines this proposition using three natural experiments provided by Euronext Paris, the Tokyo Stock Exchange and the Korea Stock Exchange. Euronext Paris and the Tokyo Stock Exchange removed broker identifiers from limit orders on April 23, 2001 and June 30, 2003, respectively. In contrast, the Korea Stock Exchange introduced broker identifiers for limit order books on October 25, 1999. The results provide evidence that altering limit order anonymity has an impact on liquidity. Consistent with expectations, liquidity is enhanced by increased anonymity and adversely affected by decreased anonymity.

Keywords: anonymity, transparency, limit orders

JEL Classification: G10, G14

Suggested Citation

Comerton-Forde, Carole and Frino, Alex and Mollica, Vito, The Impact of Limit Order Anonymity on Liquidity: Evidence from Paris, Tokyo and Korea (March 2005). Available at SSRN: https://ssrn.com/abstract=695602 or http://dx.doi.org/10.2139/ssrn.695602

Carole Comerton-Forde

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

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

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

Alex Frino (Contact Author)

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

Vito Mollica

Macquarie Graduate School of Management ( email )

Capital Markets CRC Limited (CMCRC) ( email )

Level 3, 55 Harrington Street
Sydney, 2000
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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