Hidden Orders on Euronext: Nothing is Quite as it Seems

This paper is devoted to hidden order submission on Euronext, especially for the stocks belonging,to the CAC40 index during the three last months of 2002. The goal is twofold. On the one hand, we investigate the impact of hidden order use on market depth and pretrade transparency. Thanks to the order book rebuilding, we find that more,than,one third of the volume,available at the 5 best limits is not visible on the market,screens. We also show,that hidden,depth,at the top of the order book varies a lot all along the continuous,session while displayed depth is quite stable. Furthermore, we highlight that short-term volatility affects significantly hidden depth magnitude. On the other hand, we compare hidden order placement,with usual order submission. We analyze,order aggressiveness and interactions between,the order flow and the order book. Our results suggest that hidden order traders are mainly,liquidity suppliers who focus especially on the 5 best limits of the order book. They also appear,to focus on a given market side at a point in time and,are less concerned,than,usual order traders with what happens on the opposite market side. Finally, we find evidence of splitting strategies for hidden,orders placed below the best bid or ask price. JEL Classifications : G14, G10 Keywords : Hidden orders, Market depth, Order aggressiveness, Transparency. Acknowledgements