Author(s)
Estelle Cantillon and Pai-Ling Yin
Source
NET Institute Working Paper #08-42, November 2008
Summary
This paper analyzes the role of heterogeneous traders in choosing platforms based on different liquidity preferences.
Policy Relevance
Understanding the role of heterogeneous traders in choosing platforms based on different liquidity preferences and contributing to liquidity differently are all the more important in the current financial exchange context of consolidation, global competition and differentiated pricing.
Main Points
- This paper finds evidence suggestive of better entry strategies with respect to subsidization and targeting of initial members by DTB during the competitive entry in the Bund futures trading market. By choosing a different set of initial members, DTB may have been able to generate liquidity faster than was accomplished with its observed choice of initial members.
- In a companion paper the authors of this paper studied membership decisions of trading firms for two competing exchanges: LIFFE and DTB.
- This paper estimates the heterogeneous contribution to liquidity by different types. The estimates from both papers of heterogeneous preferences and contributions to liquidity are combined.
