Does Market Transparency Matter? a Case Study

Antonio Scalia and Valerio Vacca

No 359, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We analyse a change in the degree of transparency of MTS, the electronic inter-dealer market for Italian Government bonds, namely the July 1997 move to the anonymity of quotes. Our evidence supports the hypothesis that a decrease in transparency makes liquidity traders worse-off, whereas large/informed traders find it less costly to execute block trades. The evidence is also consistent with the �waiting game� hypothesis of Foster and Viswanathan (1996): under anonymity, traders tend to delay their trades in an attempt to acquire information through the order flow. From a public welfare perspective, our results indicate that the move to anonymity has been accompanied by an increase in market liquidity and by a reduction in volatility, a phenomenon that is also partly explained by the growth in Italy�s prospects for early participation in the EMU. The speed of information aggregation on MTS increases, as shown by an improvement of the MTS lead over the futures market. In a European perspective, the current organisation and performance of MTS place the market in a competitive position with respect to other sovereign bond markets and may contribute to their integration under the single currency.

Keywords: Electronic trading; market efficiency (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 1999-10
References: View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Related works:
Chapter: Does market transparency matter? A case study (2001)
Chapter: Does Market Transparency Matter? A Case Study (1999)
Working Paper: Does Market Transparency Matter? A Case Study (1999)
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