ORIGINAL ARTICLE
Free to Read
Dealers' incentives to reveal their names
Arzé Karam,
Corresponding Author
Arzé Karam
Department of Economics and Finance, Durham University, Durham, UK
Correspondence
Arzé Karam, Department of Economics and Finance, Durham University, Mill Hill Lane, DH1 3LB, Durham, UK.
Email: arze.karam@durham.ac.uk
Search for more papers by this authorArzé Karam,
Corresponding Author
Arzé Karam
Department of Economics and Finance, Durham University, Durham, UK
Correspondence
Arzé Karam, Department of Economics and Finance, Durham University, Mill Hill Lane, DH1 3LB, Durham, UK.
Email: arze.karam@durham.ac.uk
Search for more papers by this authorAbstract
This research investigates dealers' motivation to disclose their names when quoting on the NASDAQ over the years. NASDAQ enables dealers to quote limit orders either anonymously or with a feature that reveals their names. Results are consistent with dealers advertising by revealing their identities so as to develop and maintain their reputation for reliable pricing. Dealers strategically choose to reveal their identities when order flow is profitable. Post-name disclosure analysis further suggests that named quotations are likely to be driven by informational considerations. This research contributes to our understanding of the use of non-anonymity in electronic trading.
REFERENCES
- Admati, A. R., & Pfleiderer, P. (1991). Sunshine trading and financial market equilibrium. The Review of Financial Studies, 4, 443–481.
- Barclay, M. J., Hendershott, T., & McCormick, D. T. (2003). Competition among trading venues: Information and trading on Electronic Communications Networks. The Journal of Finance, 58, 2637–2665.
- Bessembinder, H. (2003). Quote-based competition and trade execution costs in NYSE-listed stocks. The Journal of Financial Economics, 70, 385–422.
- Calcagno, R., & Lovo, S. (2006). Bid-ask price competition with asymmetric information between market-makers. The Review of Economic Studies, 73, 329–355.
- Cao, C., Ghysels, E., & Hatheway, F. (2000). Price discovery without trading: Evidence from the NASDAQ preopening. The Journal of Finance, 55, 1339–1365.
- Cao, H. H., Lyons, R. K., & Evans, M. D. (2003). Inventory information. National Bureau of Economic Research Working Paper.
- Comerton-Forde, C., Putniņš, T. J., & Tang, K. M. (2011). Why do traders choose to trade anonymously? The Journal of Financial and Quantitative Analysis, 46, 1025–1049.
- Conrad, J., Wahal, S., & Xiang, J. (2015). High-frequency quoting, trading, and the efficiency of prices. The Journal of Financial Economics, 116, 271–291.
- Davies, R. J. (2003). The Toronto stock exchange preopening session. The Journal of Financial Markets, 6, 491–516.
- Egginton, J. (2014). The declining role of NASDAQ market makers. The Financial Review, 49, 461–480.
10.1111/fire.12045 Google Scholar
- Ellis, K., Michaely, R., & O'Hara, M. (2000). The accuracy of trade classification rules: Evidence from NASDAQ. The Journal of Financial and Quantitative Analysis, 35, 529–551.
- Fishman, M. J., & Longstaff, F. A. (1992). Dual trading in futures markets. The Journal of Finance, 47, 643–671.
- Forster, M. M., & George, T. J. (1992). Anonymity in securities markets. The Journal of Financial Intermediation, 2, 168–206.
10.1016/1042-9573(92)90007-Z Google Scholar
- Foucault, T., Moinas, S., & Theissen, E. (2007). Does anonymity matter in electronic limit order markets? The Review of Financial Studies, 20, 1707–1747.
- Glosten, L. R., & Milgrom, P. R. (1985). Bid, ask and transaction prices in a specialist market with heterogeneously informed traders. The Journal of Financial Economics, 14, 71–100.
- Goldstein, M. A., Shkilko, A. V., Van Ness, B. F., & Van Ness, R. A. (2008). Competition in the market for NASDAQ securities. The Journal of Financial Markets, 11, 113–143.
- Grammig, J., Schiereck, D., & Theissen, E. (2001). Knowing me, knowing you: Trader anonymity and informed trading in parallel markets. The Journal of Financial Markets, 4, 385–412.
10.1016/S1386-4181(01)00018-0 Google Scholar
- Grossman, S. J., & Miller, M. H. (1988). Liquidity and market structure. The Journal of Finance, 43, 617–633.
- Hagstromer, B. (2017). Overestimated effective spreads: Implications for investors. Working Paper.
- Hasbrouck, J. (1995). One security, many markets: Determining the contributions to price discovery. The Journal of Finance, 50, 1175–1199.
- Holden, C. W., & Jacobsen, S. (2014). Liquidity measurement problems in fast, competitive markets: Expensive and cheap solutions. The Journal of Finance, 69, 1747–1785.
- Kyle, A. S. (1985). Continuous auctions and insider trading. Econometrica: Journal of The Econometric Society, 53, 1315–1335.
- Lo, A. W., & MacKinlay, A. C. (1989). The size and power of the variance ratio test in finite samples: A Monte Carlo investigation. Journal of Econometrics, 40, 203–238.
- Madureira, L., & Underwood, S. (2008). Information, sell-side research, and market making. The Journal of Financial Economics, 90, 105–126.
- Milgrom, P., & Roberts, J. (1986). Price and advertising signals of product quality. The Journal of Political Economy, 94, 796–821.
- Perotti, P., & Rindi, B. (2006). Market for information and identity disclosure in an experimental open limit order book. Economic Notes, 35, 97–119.
10.1111/j.0391-5026.2006.00160.x Google Scholar
- Reiss, P. C., & Werner, I. M. (1998). Does risk sharing motivate interdealer trading? The Journal of Finance, 53, 1657–1703.
- Reiss, P. C., & Werner, I. M. (2005). Anonymity, adverse selection, and the sorting of interdealer trades. The Review of Financial Studies, 18, 599–636.
- Rindi, B., & Werner, I. M. (2019). US tick size pilot. Working Paper.
- Röell, A. (1990). Dual-capacity trading and the quality of the market. The Journal of Financial intermediation, 1, 105–124.
10.1016/1042-9573(90)90001-V Google Scholar
- Schultz, P. (2003). Who makes markets. The Journal of Financial Markets, 6, 49–72.
- Simaan, Y., Weaver, D. G., & Whitcomb, D. K. (2003). Market maker quotation behavior and pretrade transparency. The Journal of Finance, 58, 1247–1267.
