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Lifting the Veil: An Analysis of Pre-trade Transparency at the NYSE




  • LEI YU

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    • Ekkehart Boehmer is from the Mays Business School, Texas A&M University. Gideon Saar is from the Stern School of Business, New York University. Lei Yu is from the Mendoza College of Business, University of Notre Dame. We wish to thank Robert Stambaugh (the editor) and an anonymous referee, as well as Yakov Amihud, Cecilia Caglio, Robert Engle, Luca Filippa, Thierry Foucault, Larry Harris, Joel Hasbrouck, Craig Holden, Robert Jennings, Charles Jones, Ronald Jordan, Pete Kyle, Timothy McCormick, Barbara Rindi, Patrik Sandas, James Shapiro, Chester Spatt, Daniel Weaver, and seminar (or conference) participants at Bocconi University, Iowa State University, the New York Stock Exchange, the Securities and Exchange Commission, Southern Methodist University, SUNY at Buffalo, Texas A&M University, Tilburg University, University of Georgia, University of Kentucky, the Fed Atlanta Financial Markets Conference, the NBER Market Microstructure Group meetings, and the Western Finance Association meetings for helpful comments. This research began while Boehmer was a Director of Research at the New York Stock Exchange and Saar was on leave from NYU and held the position of a Visiting Research Economist at the New York Stock Exchange. The opinions expressed in this paper do not necessarily reflect those of the members or directors of the NYSE.


We study pre-trade transparency by looking at the introduction of NYSE's OpenBook service that provides limit-order book information to traders off the exchange floor. We find that traders attempt to manage limit-order exposure: They submit smaller orders and cancel orders faster. Specialists' participation rate and the depth they add to the quote decline. Liquidity increases in that the price impact of orders declines, and we find some improvement in the informational efficiency of prices. These results suggest that an increase in pre-trade transparency affects investors' trading strategies and can improve certain dimensions of market quality.