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Does Market Transparency Matter? a Case Study

Author

Listed:
  • Antonio Scalia

    (Banca d'Italia)

  • Valerio Vacca

    (Banca d'Italia)

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.

Suggested Citation

  • Antonio Scalia & Valerio Vacca, 1999. "Does Market Transparency Matter? a Case Study," Temi di discussione (Economic working papers) 359, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_359_99
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    Cited by:

    1. Massimo Massa & Andrei Simonov, 2009. "Experimentation in Financial Markets," Management Science, INFORMS, vol. 55(8), pages 1377-1390, August.
    2. Yan, Ming & Li, Xiangqian & Zhao, Xing & He, Zhuoyi, 2025. "Liquidity and cost advantage of green bonds," Finance Research Letters, Elsevier, vol. 71(C).
    3. Caporale, Guglielmo Maria & Girardi, Alessandro & Paesani, Paolo, 2012. "Quoted spreads and trade imbalance dynamics in the European Treasury bond market," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 173-182.
    4. Caporale, Guglielmo Maria & Girardi, Alessandro, 2013. "Price discovery and trade fragmentation in a multi-market environment: Evidence from the MTS system," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 227-240.
    5. Peter G. Dunne & Michael J. Moore & Richard Portes, 2002. "Defining Benchmark Status: An Application using Euro-Area Bonds," NBER Working Papers 9087, National Bureau of Economic Research, Inc.
    6. Sun, Zhuowei & Dunne, Peter G. & Li, Youwei, 2015. "Price discovery in the dual-platform US Treasury market," Global Finance Journal, Elsevier, vol. 28(C), pages 95-110.
    7. Bank for International Settlements, 2014. "Market-making and proprietary trading: industry trends, drivers and policy implications," CGFS Papers, Bank for International Settlements, number 52.
    8. Peter G. Dunne & Michael J. Moore & Richard Portes, 2007. "Benchmark Status in Fixed‐Income Asset Markets," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(9‐10), pages 1615-1634, November.
    9. Paiardini, Paola, 2015. "Informed trading in parallel bond markets," Journal of Financial Markets, Elsevier, vol. 26(C), pages 103-121.
    10. J.Ramon Martinez-Resano, 2005. "Size And Heterogeneity Matter. A Microstructure-Based Analysis Of Regulation Of Secondary Markets For Government Bonds," Finance 0508007, University Library of Munich, Germany.
    11. Morten Linnemann Bech & Anamaria Illes & Ulf Lewrick & Andreas Schrimpf, 2016. "Hanging up the phone - electronic trading in fixed income markets and its implications," BIS Quarterly Review, Bank for International Settlements, March.
    12. Coluzzi, Chiara & Ginebri, Sergio & Turco, Manuel, 2008. "Measuring and Analyzing the Liquidity of the Italian Treasury Security Wholesale Secondary Market," Economics & Statistics Discussion Papers esdp08044, University of Molise, Department of Economics.
    13. Ruan, Qingsong & Zhou, Mi & Yin, Linsen & Lv, Dayong, 2021. "Hedging effectiveness of Chinese Treasury bond futures: New evidence based on nonlinear analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 565(C).
    14. Peter G. Dunne & Michael J. Moore & Richard Portes, 2007. "Benchmark Status in Fixed‐Income Asset Markets," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(9‐10), pages 1615-1634, November.
    15. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    16. Alessandro Girardi & Claudio Impenna, 2013. "Price Discovery In The Italian Sovereign Bonds Market: The Role Of Order Flow," Working Papers LuissLab 13108, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    17. Laganá, Marco & Peřina, Martin & von Köppen-Mertes, Isabel & Persaud, Avinash, 2006. "Implications for liquidity from innovation and transparency in the European corporate bond market," Occasional Paper Series 50, European Central Bank.
    18. José Ramón Martínez-Resano, 2005. "Size and heterogeneity matter. A microstructure-based analysis of regulation of secondary markets for governments bonds," Occasional Papers 0501, Banco de España.
    19. Coluzzi, Chiara & Ginebri, Sergio, 2008. "Order Dynamics in the Italian Treasury Security Wholesale Secondary Market," Economics & Statistics Discussion Papers esdp08050, University of Molise, Department of Economics.
    20. Zi Yang, 2022. "GameStop or Game Just Started? Leveling the Playing Field for Social Media Meme Investors to Rebuild the Public’s Trust," JRFM, MDPI, vol. 16(1), pages 1-13, December.
    21. John Board & Charles Sutcliffe & Stephen Wells, 2002. "Transparency and Fragmentation," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-4039-0707-3, March.
    22. Cannari Luigi & D'Alessio Giovanni, 2007. "The opinion of Italians on tax evasion," Temi di discussione (Economic working papers) 618, Bank of Italy, Economic Research and International Relations Area.

    More about this item

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    JEL classification:

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

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