IDEAS home Printed from https://ideas.repec.org/a/wly/jfutmk/v39y2019i8p985-1007.html
   My bibliography  Save this article

Block trades in options markets

Author

Listed:
  • Eleni Gousgounis
  • Sayee Srinivasan

Abstract

Block trading, which was sparse before the reduction of the minimum permissible block size threshold in October 2012, currently accounts for about 30% of the trading volume in WTI crude oil options. Block orders share similar characteristics to those routed at the pit, but they have lower information content and face higher execution costs, due to high search costs. However, our results show that such block orders would have been costlier to execute at the pit, which suggests that some pit order flow may have migrated to the upstairs market, contributing to the eventual demise of energy options pits.

Suggested Citation

  • Eleni Gousgounis & Sayee Srinivasan, 2019. "Block trades in options markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(8), pages 985-1007, August.
    • Handle: RePEc:wly:jfutmk:v:39:y:2019:i:8:p:985-1007
    DOI: 10.1002/fut.22014
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/fut.22014
    Download Restriction: no
    File URL: https://libkey.io/10.1002/fut.22014?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Rose, Annica, 2014. "The informational effect and market quality impact of upstairs trading and fleeting orders on the Australian Securities Exchange," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 171-184.
    2. Seppi, Duane J, 1990. "Equilibrium Block Trading and Asymmetric Information," Journal of Finance, American Finance Association, vol. 45(1), pages 73-94, March.
    3. Bessembinder, Hendrik, 2003. "Issues in assessing trade execution costs," Journal of Financial Markets, Elsevier, vol. 6(3), pages 233-257, May.
    4. Brian F. Smith & D. Alasdair S. Turnbull & Robert W. White, 2001. "Upstairs Market for Principal and Agency Trades: Analysis of Adverse Information and Price Effects," Journal of Finance, American Finance Association, vol. 56(5), pages 1723-1746, October.
    5. Grossman, Sanford J, 1992. "The Informational Role of Upstairs and Downstairs Trading," The Journal of Business, University of Chicago Press, vol. 65(4), pages 509-528, October.
    6. Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, vol. 51(2), pages 507-512, March.
    7. Werner, Ingrid M., 2003. "NYSE order flow, spreads, and information," Journal of Financial Markets, Elsevier, vol. 6(3), pages 309-335, May.
    8. Kraus, Alan & Stoll, Hans R, 1972. "Price Impacts of Block Trading on the New York Stock Exchange," Journal of Finance, American Finance Association, vol. 27(3), pages 569-588, June.
    9. Bessembinder, Hendrik & Venkataraman, Kumar, 2004. "Does an electronic stock exchange need an upstairs market?," Journal of Financial Economics, Elsevier, vol. 73(1), pages 3-36, July.
    10. Glosten, Lawrence R, 1994. "Is the Electronic Open Limit Order Book Inevitable?," Journal of Finance, American Finance Association, vol. 49(4), pages 1127-1161, September.
    11. Hamish D. Anderson & Sapphire Cooper & Andrew K. Prevost, 2006. "Block Trade Price Asymmetry and Changes in Depth: Evidence from the Australian Stock Exchange," The Financial Review, Eastern Finance Association, vol. 41(2), pages 247-271, May.
    12. Lee, Charles M C & Ready, Mark J, 1991. "Inferring Trade Direction from Intraday Data," Journal of Finance, American Finance Association, vol. 46(2), pages 733-746, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Murgia, Maurizio & Pinna, Andrea & Gottardo, Pietro & Bosetti, Luisella, 2019. "The impact of large orders in electronic markets," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 174-192.
    2. Rose, Annica, 2014. "The informational effect and market quality impact of upstairs trading and fleeting orders on the Australian Securities Exchange," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 171-184.
    3. Białkowski, Jędrzej & Hong, Sanghyun & Wagner, Moritz, 2022. "From upstairs to downstairs trading: Evidence from a highly segmented market," Finance Research Letters, Elsevier, vol. 46(PB).
    4. Monia Antar Limem & Faouzi Jilani, 2013. "Large trades on the Tunisian Stock Exchange: Downstairs versus upstairs stock markets," Journal of Asset Management, Palgrave Macmillan, vol. 14(6), pages 410-422, December.
    5. Ibikunle, Gbenga, 2015. "Opening and closing price efficiency: Do financial markets need the call auction?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 34(C), pages 208-227.
    6. Markku Vieru, 2003. "Use of Different Trading Environments Around Interim Earnings Announcements on the Helsinki Stock Exchange," Multinational Finance Journal, Multinational Finance Journal, vol. 7(3-4), pages 131-152, September.
    7. de Roure, Calebe & Mönch, Emanuel & Pelizzon, Loriana & Schneider, Michael, 2019. "OTC discount," Discussion Papers 42/2019, Deutsche Bundesbank.
      • de Roure, Calebe & Mönch, Emanuel & Pelizzon, Loriana & Schneider, Michael, 2021. "OTC discount," SAFE Working Paper Series 298, Leibniz Institute for Financial Research SAFE, revised 2021.
    8. Fan, Longzhen & Hu, Bill & Jiang, Christine, 2012. "Pricing and information content of block trades on the Shanghai Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 20(3), pages 378-397.
    9. Hatheway, Frank & Kwan, Amy & Zheng, Hui, 2017. "An Empirical Analysis of Market Segmentation on U.S. Equity Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(6), pages 2399-2427, December.
    10. P. Joakim Westerholm, 2009. "Do uninformed crossed and internalized trades tap into unexpressed liquidity? The case of Nokia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(2), pages 407-424, June.
    11. Kwan, Amy & Masulis, Ronald & McInish, Thomas H., 2015. "Trading rules, competition for order flow and market fragmentation," Journal of Financial Economics, Elsevier, vol. 115(2), pages 330-348.
    12. Katya Malinova & Andreas Park, 2009. "Liquidity, Volume, and Price Behavior: The Impact of Order vs. Quote Based Trading," Working Papers tecipa-358, University of Toronto, Department of Economics.
    13. Alexander, Gordon J. & Peterson, Mark A., 2007. "An analysis of trade-size clustering and its relation to stealth trading," Journal of Financial Economics, Elsevier, vol. 84(2), pages 435-471, May.
    14. Comerton-Forde, Carole & Tang, Kar Mei, 2009. "Anonymity, liquidity and fragmentation," Journal of Financial Markets, Elsevier, vol. 12(3), pages 337-367, August.
    15. Peter Gomber & Satchit Sagade & Erik Theissen & Moritz Christian Weber & Christian Westheide, 2017. "Competition Between Equity Markets: A Review Of The Consolidation Versus Fragmentation Debate," Journal of Economic Surveys, Wiley Blackwell, vol. 31(3), pages 792-814, July.
    16. Chris Kenyon & Jan Camenisch, 2011. "Provably linkable trading," Quantitative Finance, Taylor & Francis Journals, vol. 11(5), pages 641-651.
    17. Malinova, Katya & Park, Andreas, 2013. "Liquidity, volume and price efficiency: The impact of order vs. quote driven trading," Journal of Financial Markets, Elsevier, vol. 16(1), pages 104-126.
    18. Murphy Jun Jie Lee, 2013. "The Microstructure of Trading Processes on the Singapore Exchange," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2013, January-A.
    19. Angelo Carollo & Gabriella Vaglica & Fabrizio Lillo & Rosario N. Mantegna, 2012. "Trading activity and price impact in parallel markets: SETS vs. off-book market at the London Stock Exchange," Quantitative Finance, Taylor & Francis Journals, vol. 12(4), pages 517-530, November.
    20. Bessembinder, Hendrik & Venkataraman, Kumar, 2004. "Does an electronic stock exchange need an upstairs market?," Journal of Financial Economics, Elsevier, vol. 73(1), pages 3-36, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jfutmk:v:39:y:2019:i:8:p:985-1007. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/0270-7314/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.