This research was funded by the Sydney Futures Exchange under Corporations Regulation 7.5.88(2). The authors thank workshop participants at the Business Development Group of the Australian Securities Exchange, and the comments of an anonymous referee.
The impact of a pro-rata algorithm on liquidity: Evidence from the NYSE LIFFE
Article first published online: 21 JUN 2011
© 2011 Wiley Periodicals, Inc.
Journal of Futures Markets
Volume 32, Issue 7, pages 660–682, July 2012
How to Cite
Lepone, A. and Yang, J. Y. (2012), The impact of a pro-rata algorithm on liquidity: Evidence from the NYSE LIFFE. J. Fut. Mark., 32: 660–682. doi: 10.1002/fut.20536
- Issue published online: 23 APR 2012
- Article first published online: 21 JUN 2011
- Manuscript Accepted: MAY 2011
- Manuscript Received: APR 2011
- Sydney Futures Exchange under Corporations Regulation
Vol. 32, Issue 8, 807, Article first published online: 1 JUN 2012
This study investigates the impact of introducing a pure pro-rata algorithm on the liquidity of the market for Euribor futures contracts on NYSE LIFFE. Results indicate that the Euribor market experiences deterioration in liquidity: (1) both best and total depth fall and (2) quoted spreads widen after the structural change. Results also reveal that the Euribor market becomes more active after the event; both trading volume and trade frequency increase substantially after the event. Finally, after the transition, liquidity demanders are more likely to submit smaller market orders. The reduction in depth and increase in quoted spreads suggest that liquidity demanders incur higher trade execution costs after the transition. In contrast, the transition is beneficial for the exchange since trading volume is higher under the new regime. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark 32:660–682, 2012