Dancing in the dark: post-trade anonymity, liquidity
and informed trading
Published online: 13 February 2010
Ó Springer Science+Business Media, LLC 2010
Abstract We analyze the impact of post-trade anonymity on liquidity and informed
trading in an order driven stock market. The German stock market introduced the Central
Counterparty (CCP) in March 2003 for German equities traded on its anonymous elec-
tronic trading platform Xetra leading to a major change in its existing transparency regime.
Before the introduction trader IDs were revealed to the counterparties of a trade, with the
introduction of the CCP even after the transaction the traders remain anonymous. Previous
theoretical and empirical research documents that pre-trade anonymity results in increased
liquidity, while results on post-trade anonymity are mixed. We ﬁnd a signiﬁcant increase in
liquidity measured through a reduction of 25% in implicit transaction costs. We also
document that the arrival rate of informed traders is reduced in the anonymous setting.
Following recent ﬁndings of Bloomﬁeld et al. (J Finan Econ 75:165–199, 2005) that
informed traders take on the role of liquidity providers we interpret our ﬁndings as indi-
cation that informed traders change their behavior in providing liquidity more aggressively
in an anonymous environment.
Keywords Anonymity Á Liquidity Á Information based trading
JEL Classiﬁcation G14
Large part of this work was completed when Alexandra Hachmeister was Research Assistant at the
European Business School. The views expressed in this article are those of the authors and do not neces-
sarily reﬂect the views of Deutsche Bo
rse AG, any of its subsidiaries, or anyone else.
rse AG, Frankfurt, Germany
D. Schiereck (&)
Department of Business Administration, Tech University Darmstadt, Hochschulstr. 1, 64289
Rev Quant Finan Acc (2010) 34:145–177