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Competition for Order Flow and Market Quality in the Gold and Silver Futures Markets

Author

Listed:
  • Karan Bhanot

    (University of Texas at San Antonio)

  • Valeria Martinez

    (Fairfield University)

  • Zi Ning

    (University of Texas at San Antonio)

  • Yiuman Tse

    (University of Texas at San Antonio)

Abstract

On December 4, 2006, the side-by-side trading of Commodities Exchange (COMEX) Division’s gold and silver futures contracts was launched on Chicago Mercantile Exchange’s Globex electronic trading platform, as a fight-back against the introduction of copies of these contracts from the Chicago Board of Trade (CBOT). The electronic COMEX saw an immediate surge and steady increase in market share, while market portions of the electronic CBOT and open outcry COMEX continued to drop. The market quality for both full-sized and mini-sized contracts is superior to that of their pit-traded counterparts. Despite its shrinking volume share, the electronic CBOT has comparable market quality conditions to the electronic COMEX. The theoretical models of multimarket trading suggest that a transparent electronic limit order market enhances market quality overall. Moreover, the primary market emerges as the dominant center for trading volume. Our results are broadly consistent with these theoretical predictions.

Suggested Citation

  • Karan Bhanot & Valeria Martinez & Zi Ning & Yiuman Tse, 2008. "Competition for Order Flow and Market Quality in the Gold and Silver Futures Markets," Working Papers 0036, College of Business, University of Texas at San Antonio.
    • Handle: RePEc:tsa:wpaper:0081fin
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    File URL: http://interim.business.utsa.edu/wps/fin/0036FIN-257-2008.pdf
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    References listed on IDEAS

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    Cited by:

    1. Martinez, Valeria & Gupta, Paramita & Tse, Yiuman & Kittiakarasakun, Jullavut, 2011. "Electronic versus open outcry trading in agricultural commodities futures markets," Review of Financial Economics, Elsevier, vol. 20(1), pages 28-36, January.
    2. Valeria Martinez & Paramita Gupta & Yiuman Tse & Jullavut Kittiakarasakun, 2011. "Electronic versus open outcry trading in agricultural commodities futures markets," Review of Financial Economics, John Wiley & Sons, vol. 20(1), pages 28-36, January.

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    More about this item

    Keywords

    gold; silver; commodity futures; market quality;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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