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Designing Order-Book Transparency In Electronic Communication Networks


  • Romans Pancs


A significant fraction of trade in stock exchanges (e.g., Euronext and NASDAQ) involves ‘iceberg orders’, which are orders to sell or buy a certain number of shares with the caveat that only a part of that number be made public. This paper provides a normative justification for the lack of transparency in this kind of order: imperfect disclosure is shown to be a necessary feature of any optimal mechanism when the asset's potential buyers must incur a cost in order to become active and learn their valuations for the asset. This finding raises a caveat for regulation that seeks to mandate the open order book or otherwise increase the pre-trade transparency of stock exchanges.

Suggested Citation

  • Romans Pancs, 2014. "Designing Order-Book Transparency In Electronic Communication Networks," Journal of the European Economic Association, European Economic Association, vol. 12(3), pages 702-723, June.
  • Handle: RePEc:bla:jeurec:v:12:y:2014:i:3:p:702-723

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    Cited by:

    1. Rosar, Frank, 2017. "Test design under voluntary participation," Games and Economic Behavior, Elsevier, vol. 104(C), pages 632-655.
    2. Fuchs, William & Öry, Aniko & Skrzypacz, Andrzej, 2016. "Transparency and distressed sales under asymmetric information," Theoretical Economics, Econometric Society, vol. 11(3), September.

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