Intra-Day Revelation of Counterparty Identity in the World's Best-Lit Market

Anonymous Trading in Equities

“…How do the estimates in Table IV compare with existing empirical research on posttrade anonymity? Using before‐after designs, Pham, Swan, and Westerholm (2016) find that anonymity reduces trading volume on the South Korea Exchange by more than 50%, while Waisburd (2003) finds that anonymity increases bid‐ask spreads on the Paris Bourse by about 25%. In contrast, Dennis and Sandås (2020), Hachmeister and Schiereck (2010), and Friederich and Payne (2014) find that anonymity reduces bid‐ask spreads by about 30%, 25%, and 20% on the Nasdaq Nordic exchanges, the Deutsche Börse, and the London Stock Exchange, respectively.…”

“…In Internet Appendix Section VIII, I show that the results of the paper are robust to the inclusion of various control variables, such as stock price and market capitalization. 21 The two papers that document negative effects of posttrade anonymity on trading volume and stock liquidity, Waisburd (2003) and Pham, Swan, and Westerholm (2016), both consider anonymity reforms in the mid-1990s, and they both use before-after designs to identify the effects of anonymity. It could be the case that the effects of anonymity have reversed from negative in the 1990s to positive in the mid and late 2000s, when the effects of my paper, Dennis and Sandås (2020), Hachmeister and Schiereck (2010), and Friederich and Payne (2014) are measured.…”

“…It could be the case that the effects of anonymity have reversed from negative in the 1990s to positive in the mid and late 2000s, when the effects of my paper, Dennis and Sandås (2020), Hachmeister and Schiereck (2010), and Friederich and Payne (2014) are measured. It is also possible that the before-after estimates in Waisburd (2003) and Pham, Swan, and Westerholm (2016) are confounded by market-wide trends in trading volume and liquidity that are better accounted for in the DiD designs of Friederich and Payne (2014) and Dennis and Sandås (2020), and the RD design of my paper.…”

“…This paper connects to the literature in several ways. First, existing empirical literature documents both positive (Hachmeister and Schiereck (2010), Friederich and Payne (2014), Dennis and Sandås (2020)) and negative (Waisburd (2003), Pham, Swan, and Westerholm (2016)) effects of posttrade anonymity on stock liquidity and trading volume. This literature is based on nonexogenous variation for which identification is difficult.…”

Does Trading Anonymously Enhance Liquidity?

“…The introduction of the TRACE (Trade Reporting and Compliance Engine) system for U.S. corporate bond markets increased transparency and a number of studies (e.g., Bessembinder, Maxwell and Venkataraman (2006), Edwards, Harris and Piwowar (2007), and Goldstein, Hotchkiss and Sirri (2007)) document that this led to improvements in liquidity. Post-trade anonymity, which is a special form of post-trade transparency, has been examined by Hachmeister and Schiereck (2010), Friederich and Payne (2014), Frino et al (2010), Lepone, Segara and Wong (2012), Linnainmaa and Saar (2012), Meling (2018), Pham, Swan and Westerholm (2015), Menkhoff and Schmeling (2010), and Poskitt, Marsden, Nguyen, and Shen (2011). Most, but not all, find that a reduction in transparency of this form improved liquidity.…”