Anonymity, liquidity and fragmentation Comerton-Forde, Carole; Tang, Kar Mei

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Comerton-Forde, Carole ; Tang, Kar Mei
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Journal of Financial Markets
Liquidity (Finance); Banking, finance and accounting industries
To link to full-text access for this article, visit this link: Byline: Carole Comerton-Forde, Kar Mei Tang Keywords: Anonymity; Liquidity; Market fragmentation; Order flow Abstract: We examine the effects of the removal of broker identifiers from the central limit order book of the Australian Stock Exchange. We find that spreads and order aggressiveness decline, and order book depth increases, with the introduction of anonymous trading. This is consistent with the hypothesis that limit order traders are more willing to expose their orders when they can do so anonymously. Anonymous markets attract order flow from non-anonymous substitute markets, but this effect is only seen in large stocks. Our results suggest that exchanges operating in fragmented markets should consider anonymous trading to improve price competition and liquidity, although some of these benefits may be significant only if the stocks are sufficiently large and liquid. Author Affiliation: Discipline of Finance, Faculty of Economics and Business, Economics and Business Building (H69), University of Sydney, NSW 2006, Australia
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