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Impact of Electronic Trading Platforms on the Brokered Interdealer Market for Government of Canada Benchmark Bonds

  • Natasha Khan
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    This study examines the impact of increased transparency, brought about by the introduction of three electronic trading systems, on the brokered interdealer market for Government of Canada benchmark securities. Using the CanPX dataset for the 2-, 5-, 10-, and 30-year benchmarks, the paper finds some evidence of decreased bid-ask spreads for the 30-year benchmark in the months following the introduction of the electronic platforms. Bid-ask spreads are not significantly different in the pre- and post-transparency periods for the 2-, 5- or 10-year benchmarks. The price-impact coefficient, calculated using dollar value as a measure of order flow, also decreased in the post-event period for the 30-year benchmark but is not statistically different for any of the other benchmarks. Overall, there is little evidence that liquidity improved or was lowered by the introduction of the electronic systems.

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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp07-5.pdf
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    Paper provided by Bank of Canada in its series Working Papers with number 07-5.

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    Length: 41 pages
    Date of creation: 2007
    Date of revision:
    Handle: RePEc:bca:bocawp:07-5
    Contact details of provider: Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
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    Web page: http://www.bank-banque-canada.ca/

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    1. Gemmill, Gordon, 1996. " Transparency and Liquidity: A Study of Block Trades on the London Stock Exchange under Different Publication Rules," Journal of Finance, American Finance Association, vol. 51(5), pages 1765-90, December.
    2. Sanford J Grossman & Joseph E Stiglitz, 1997. "On the Impossibility of Informationally Efficient Markets," Levine's Working Paper Archive 1908, David K. Levine.
    3. Lyons, Richard K., 1995. "Tests of microstructural hypotheses in the foreign exchange market," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 321-351.
    4. Chris D'Souza & Charles Gaa, 2004. "The Effects of Economic News on Bond Market Liquidity," Working Papers 04-16, Bank of Canada.
    5. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
    6. Hoidal Bjonnes, Geir & Rime, Dagfinn, 2003. "Dealer Behavior and Trading Systems in Foreign Exchange Markets," SIFR Research Report Series 17, Institute for Financial Research.
    7. Ekkehart Boehmer & Gideon Saar & Lei Yu, 2005. "Lifting the Veil: An Analysis of Pre-trade Transparency at the NYSE," Journal of Finance, American Finance Association, vol. 60(2), pages 783-815, 04.
    8. Richard C. Green & Burton Hollifield & Norman Schurhoff, . "Financial Intermediation and the Costs of Trading in an Opaque Market," GSIA Working Papers 2004-11, Carnegie Mellon University, Tepper School of Business.
    9. Chris D'Souza & Charles Gaa & Jing Yang, 2003. "An Empirical Analysis of Liquidity and Order Flow in the Brokered Interdealer Market for Government of Canada Bonds," Working Papers 03-28, Bank of Canada.
    10. Flood, Mark D, et al, 1999. "Quote Disclosure and Price Discovery in Multiple-Dealer Financial Markets," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 37-59.
    11. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, June.
    12. Toni Gravelle, 2002. "The Microstructure of Multiple-Dealer Equity and Government Securities Markets: How They Differ," Working Papers 02-9, Bank of Canada.
    13. Madhavan, Ananth & Porter, David & Weaver, Daniel, 2005. "Should securities markets be transparent?," Journal of Financial Markets, Elsevier, vol. 8(3), pages 265-287, August.
    14. Madhavan, Ananth, 1995. "Consolidation, Fragmentation, and the Disclosure of Trading Information," Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 579-603.
    15. Bloomfield, Robert & O'Hara, Maureen, 1999. "Market Transparency: Who Wins and Who Loses?," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 5-35.
    16. Pagano, Marco & Roell, Ailsa, 1996. " Transparency and Liquidity: A Comparison of Auction and Dealer Markets with Informed Trading," Journal of Finance, American Finance Association, vol. 51(2), pages 579-611, June.
    17. Bank for International Settlements, 1999. "Market Liquidity: Research Findings and Selected Policy Implications," CGFS Papers, Bank for International Settlements, number 11, Autumn.
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