Do designated market makers improve liquidity in open‐outcry futures markets?

Abstract

On February 1, 2002, the Chicago Board of Trade appointed a designated market maker to enhance liquidity in its 10‐year interest rate swap futures contract. This market‐making program is the first of its kind in the open‐outcry futures industry. We find that introduction of the market maker has increased volume and reduced transaction costs. The market maker has also enhanced the speed and the efficiency of price discovery. Overall, the results suggest that the market‐making program is successful in improving liquidity. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:479–502, 2004

The contribution of market makers to liquidity and efficiency of options trading in electronic markets

“…They are also consistent with the findings of Haan (2001) and Mann et al (2003) on illiquid stocks in the Euronext, and Tse and Zabotina (2004) findings on interest swap futures in the CBOT and others.…”

Information transmission in electronic versus open-outcry trading systems: An analysis of U.S. equity index futures markets

“…For a further discussion of alternative estimators of the bid-ask spread for intraday futures prices, see Wang et al (1994) and Smith and Whaley (1994). Tse and Zabotina (2004) preformed an empirical comparison of alternative estimators of realized bid-ask spreads for futures time and sale data. E-mini index futures in terms of CTI 1 and CTI 4 trading volume, respectively.…”

The informational impact of electronic trading systems on the FTSE 100 stock index and its futures contracts

“…These services are particularly valuable for less liquid stocks (Madhavan and Sofianos 1998). In a similar perspective, it is argued that human intermediation provides market stability in the presence of severe asymmetric information problems (Glosten 1989;Tse and Zabotina 2004). Conversely, Bloomfield, O'Hara, and Saar (2003) argue that in electronic systems informed traders can also provide liquidity to the order book through the submission of limit orders when the value of their information is low.…”