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Decreased price clustering in FTSE100 futures contracts following a transfer from floor to electronic trading
Author(s) -
ap Gwilym Owain,
Alibo Evamena
Publication year - 2003
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.10080
Subject(s) - futures contract , cluster analysis , open outcry , price discovery , business , economics , financial economics , algorithmic trading , alternative trading system , computer science , artificial intelligence
The issues of price clustering and electronic trading have triggered important recent debates, and generatedinterest from regulators due to their potential implications for market quality, stability, and fairness. Thispaper brings together these issues by examining whether price‐clustering behavior differs following atransfer of futures contracts from open outcry trading to an electronic system. The results are unique indemonstrating a structural change in price clustering following the move to automated trading, with the level ofprice clustering dropping from around 98.5% of prices at even ticks under floor trading to approximately75% under electronic trading. Such a change in pricing behavior amounts to a reduction in the effectivetick size, and is an important factor in reducing observed bid‐ask spreads. © 2003 WileyPeriodicals, Inc. Jrl Fut Mark 23:647–659, 2003