Market Liquidity and Trader Welfare in Multiple Dealer Markets: Evidence from Dual Trading Restrictions
研究双重交易限制对多交易商市场中交易者福利的影响，发现限制并未显著改变市场流动性，但损害了高技能双重交易商及其客户的利益。
In the context of dual trading restrictions, we examine whether aggregate liquidity measures are appropriate indicators of trader welfare in multiple dealer markets.Consistent with our theoretical results, we show empirically that dual trading restrictions did not affect market liquidity significantly, but dual traders of above-average skills may have quit brokerage and switched to trading exclusively for their own accounts following restrictions.Further, customers of these dual-traders had lower trading costs in the period before restrictions relative to the trading costs of all customers after restrictions.on the average bid-ask spread, but still hurt highly skilled dealers and their customers.Our theoretical model analyzes the consequences of "dealer heterogeneity".In the model, based on Spiegel and Subrahmanyam (1992), hedgers and informed customers execute their orders through futures floor traders (dual traders and pure brokers).Risk-neutral informed customers trade based on signals about the asset value.Risk-averse hedgers trade to protect the values of their endowments of the risky asset.We assume that floor traders are of different skill levels and, further, that a more skilled floor trader attracts more hedgers to trade.Also in the spirit of Grossman (1989), the average skill of dual traders is assumed to be higher than that of pure brokers.One result of the model is that customers' welfare and dual traders' personal trading revenues are increasing in the skill level, implying that a restriction on dual trading is welfare-reducing for customers of dual traders with above-average skill levels.Yet, provided the difference in average skill levels between dual traders and pure brokers is not too large, market depth (the inverse of the price impact from a trade) is relatively unaffected.These results are consistent with Fishman and Longstaff (1992), who, in the context of front running, argue that "customers' preferences regarding a market's trading rules cannot always be measured by the resulting bid-ask spread."Our empirical analysis uses futures markets data to examine two episodes of dual trading restrictions: the Chicago Mercantile Exchange's (CME) top-step rule, which has effectively restricted dual trading in the S&P index futures since June 1987; and CME rule 552, which has restricted dual trading in high volume contracts since May 1990.To study the effects of rule 552, we examine the Japanese Yen futures contract.Our results show that neither market depth nor the average realized 3 bid-ask spread changed significantly following each of these restrictions.Next, we investigate whether dual traders were heterogenous with respect to their skill levels and *D * * =