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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/14227
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| Title: | ELECTRONIC MARKETS AND FLOOR MARKETS: COMPETITION FOR TRADING VOLUMES
IN FUTURES AND OPTIONS EXCHANGES |
| Authors: | Levecq, Hugues
Weber, Bruce W. |
| Issue Date: | 15-Jun-1995 |
| Publisher: | Stern School of Business, New York University |
| Series/Report no.: | IS-95-20 |
| Abstract: | The internationalization of financial markets and the increasing demand
for risk management products have fueled the growth of derivatives
markets. While most exchanges have experienced increasing volumes over
recent years, the pace of growth varies widely across exchanges, and the
established marketplaces face increasing competitive pressures. In this
paper, we investigate whether the trading mechanism offered to
derivatives investors influences growth in market volumes. In
particular, we distinguish between manual open outcry and electronic
trading. In a floor market, traders gather in a pit and announce their
orders. They complete trades using a combination of hand signals and eye
contact. In an electronic market, orders are submitted to a central
order book, and trades are created according to a matching algorithm.
Using volume data from 1990-1994 for futures and options exchanges
worldwide, we compute growth rates for the largest contracts and find
that contracts traded in screen-based exchanges have experienced faster
growth than those traded in manual markets. We discuss several
interpretations of the data, but conclude that electronic exchanges are
developing a competitive advantage. |
| URI: | http://hdl.handle.net/2451/14227 |
| Appears in Collections: | IOMS: Information Systems Working Papers
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