ABSTRACT

Market transparency refers to the quantity, quality, and promptness of the information that market participants receive about the trading process. The pros and cons of transparent venues lie at the heart of a debate that has deserved a significant empirical and theoretical research effort in the last few years (e.g. Madhavan 2000). Part of this literature focuses on pre-trade transparency, that is to say, the open dissemination of limit order book (LOB) information (e.g. Boehmer, Saar, and Yu 2005; Madhavan, Porter, andWeaver 2005). Other researchers look at post-trade transparency, the free and real-time disclosure of information about transactions (e.g. Pagano and Roëll 1996; Naik, Neuberger, and Viswanathan 1999). Finally, the public availability of information about the identity of liquidity providers (e.g. Simaan, Weaver, and Whitcomb 2003; Foucault, Moinas, and Theissen 2007) and trade participants (e.g. Garfinkel and Nimalendran 2003) has also been analyzed. All these studies compare the impact of more or less opaque trading systems on market quality as defined by liquidity, volatility, trading costs, price efficiency, etc. This paper deals with a dimension of pre-trade transparency that has produced a more limited theoretical and empirical research so far, the use of the so-called iceberg orders in order-driven markets.