Execution Costs and Their Intraday Variation in Futures Markets

Ferguson, Michael F.; Mann, Steven C.

doi:10.1086/209666

Cited by 36 publications

(39 citation statements)

References 55 publications

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“…Table II reports the proportions of daily volume for various counterparty combinations in regular and Emini futures. Consistent with prior literature (e.g., Manaster & Mann, 1996;Ferguson & Mann, 2001), trades between exchange locals and offexchange customers account for the largest proportion of trades and volume among all four considered contracts. Note.…”

Section: Distribution Of Trading Volume By Cti Typesupporting

confidence: 85%

“…This direct measure of transaction costs in futures markets is suggested by Locke and Venkatesh (1997) and used by Ferguson and Mann (2001), among others. The execution spread is calculated as mean customer buy price minus mean customer sell price for a five-minute interval, with prices weighted by trade size.…”

Section: Estimated Bid-ask Spreads Of Regular and E-mini Futuresmentioning

confidence: 99%

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Is it time to reduce the minimum tick sizes of the E-mini futures?

Kurov

Zabotina

2004

J. Fut. Mark.

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On the Chicago Mercantile Exchange (CME), so-called "E-mini" index futures contracts trade on the electronic GLOBEX trading system alongside the corresponding full-size contracts that trade on the open outcry floor. This paper finds that the current minimum tick sizes of the E-mini S&P 500 and E-mini Nasdaq-100 futures contracts act as binding constraints on the bid-ask spreads by not allowing the spreads to decline to competitive levels. We also find that, while exchange locals trade very actively on GLOBEX, they do not tend to act as liquidity suppliers. Taken together, our empirical results suggest that it is time for the CME to consider decreasing the minimum tick sizes of the S&P 500 and Nasdaq-100 E-mini futures contracts. A tick size reduction is likely to result in lower trading costs in the E-mini futures markets.

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Section: Distribution Of Trading Volume By Cti Typesupporting

confidence: 85%

Section: Estimated Bid-ask Spreads Of Regular and E-mini Futuresmentioning

confidence: 99%

Is it time to reduce the minimum tick sizes of the E-mini futures?

Kurov

Zabotina

2004

J. Fut. Mark.

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“…Tacit collusion is often a reality in the open-outcry markets (Gwilym, Clare, & Thomas, 1998;Pirrong, 1996). In addition, locals in the open-outcry exchanges are able to extract super-competitive profits from trading against the orders of off-exchange customers (Ferguson & Mann, 2001). Therefore, adding a market maker to a system of multiple dealers or locals will improve liquidity only if the competitive strategy of this market maker differs from that of dealers or locals.…”

Section: Literature Review and Current Analysismentioning

confidence: 99%

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

Tse

Zabotina

2004

Journal of Futures Markets

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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

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“…Chang et al, 1994;Fishman and Longstaff, 1992;Manaster and Mann, 1996;Chang and Locke, 1996;Locke and Venkatesh, 1997;Ferguson and Mann, 2001;Sarajoyi, 2004 andKurov, 2005). Accounting FIFO trading profit estimates provide a direct measure of transactions costs when transactions can be classified by trader identity.…”

Section: Transaction Costs and Trading Activitymentioning

confidence: 99%

“…Accounting FIFO trading profit estimates provide a direct measure of transactions costs when transactions can be classified by trader identity. Similar to Locke and Venkatesh (1997), Ferguson and Mann (2001), Locke and Sarajoyi (2004), and Kurov, (2005), we use accounting FIFO estimates to estimate trading costs, but with a much more refined data set 1 .…”

Section: Transaction Costs and Trading Activitymentioning

confidence: 99%

Limit Orders, Trading Activity, and Transactions Costs in Equity Futures in an Electronic Trading Environment

Switzer

Fan

2008

SSRN Journal

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The behaviour of limit order quotes and trading activity are studied using a unique and rich database that includes the identity of market participants from a fully automated derivatives market. The analysis is performed using transactions records for three aggregated trader types and three trade identifiers, with trades stamped in milliseconds for the SXF, the equity futures contract of the Montreal Exchange. The identifiers distinguish trades between principals; agency based trades, as well as transactions that are conducted for risk management as opposed to speculative purposes. Agency related trades are shown to represent the largest amount of trading activity relative to other account types. Over 90% of trades in this electronic market are limit orders. The limit order book, especially the depth 1 order, has a dominant role in providing liquidity and in explaining market participants' trading behaviour. Participants in the SXF reference their trades to the best limit order depth. Hence, investors with large positions or investors who want to build a large position have to strategically split large orders to close/build their position, according to the depth of the best limit order, to ameliorate price impact and information leakage effects. In addition, the results show that traditionally measured spreads have no relationship with trading costs.

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Execution Costs and Their Intraday Variation in Futures Markets

Cited by 36 publications

References 55 publications

Is it time to reduce the minimum tick sizes of the E-mini futures?

Is it time to reduce the minimum tick sizes of the E-mini futures?

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

Limit Orders, Trading Activity, and Transactions Costs in Equity Futures in an Electronic Trading Environment

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