Pro-rata matching and one-tick futures markets

Jonathan Field and Jeremy Large

No 2008/40, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: We find and describe four futures markets where the bid-ask spread is bid down to the fixed price tick size practically all the time, and which match counterparties using a pro-rata rule. These four markets' offered depths at the quotes on average exceed mean market order size by two orders of magnitude, and their order cancellation rates (the probability of any given offered lot being cancelled) are significantly over 96 per cent. We develop a simple theoretical model to ex- plain these facts, where strategic complementarities in the choice of limit order size cause traders to risk overtrading by submitting over-sized limit orders, most of which they expect to cancel.

Keywords: Limit Order Book; Pro-Rata; Tick Size; Bid-Ask Spread; Depths (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:200840

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