Decreased price clustering in FTSE100 futures contracts following a transfer from floor to electronic trading
✍ Scribed by Owain ap Gwilym; Evamena Alibo
- Publisher
- John Wiley and Sons
- Year
- 2003
- Tongue
- English
- Weight
- 90 KB
- Volume
- 23
- Category
- Article
- ISSN
- 0270-7314
No coin nor oath required. For personal study only.
✦ Synopsis
Abstract
The issues of price clustering and electronic trading have triggered important recent debates, and generated
interest from regulators due to their potential implications for market quality, stability, and fairness. This
paper brings together these issues by examining whether price‐clustering behavior differs following a
transfer of futures contracts from open outcry trading to an electronic system. The results are unique in
demonstrating a structural change in price clustering following the move to automated trading, with the level of
price clustering dropping from around 98.5% of prices at even ticks under floor trading to approximately
75% under electronic trading. Such a change in pricing behavior amounts to a reduction in the effective
tick size, and is an important factor in reducing observed bid‐ask spreads. © 2003 Wiley
Periodicals, Inc. Jrl Fut Mark 23:647–659, 2003