Effects on Fragmentation and Market Quality When ASX Moves Towards a More Anonymous Market

Abstract

This thesis addresses the question of whether the anonymization of broker identifiers has an effect on market quality through the natural experiment on the Australian Securities Exchange. We show that the removal of broker identifiers on the ASX has a significant impact on the market quality measures. We confirm that the removal of broker identifiers effects on a fall in traded value, an increase in transaction costs and an increase in intraday volatility. Results indicate that the large special crossings exhibit the best market quality measures in the anonymous regime. Specifically, there is a strong signal that the better informed institutions and their brokers, who are mostly active in the larger stocks gain more advantage from their position after the market reform. Further, we obtain strong results that larger firms benefit more from a transparent market. We conclude that there is value in greater pre-trade transparency in the form of the disclosure of broker identification.