Market Structure and Trader Anonymity: An Analysis of Insider Trading

• Published in: Journal of financial and quantitative analysis Vol. 38; no. 3; pp. 591 - 610
• Main Authors: Garfinkel, Jon A., Nimalendran, M.
• Format: Journal Article
• Language: English
• Published: New York, USA Cambridge University Press 01-09-2003; University of Washington School of Business Administration and New York University Leonard N. Stern School of Business
• Subjects: Anonymity; Brokers; Business studies; Cost estimates; Costs; Experts; Finance; Financial economics; Hypotheses; Information; Insider trading; Inventory; Investment; Mathematical models; Nasdaq Composite Index; Order processing; Prices; Quantitative analysis; Sanctions; Securities markets; Securities trading; Spread; Statistical median; Stock exchange; Stock exchanges; Stock prices; Stockbrokers; Stocks; Studies; Trade; Trade specialization; Trade volume; Transaction costs; United States > US
• ISSN: 0022-1090; 1756-6916
• DOI: 10.2307/4126733

This paper examines the degree of anonymity—the extent to which a trader is recognized as informed—on alternative market structures. We find evidence that is consistent with less anonymity on the NYSE specialist system compared to the NASDAQ dealer system. Specifically, when corporate insiders trade medium-sized quantities (500–9,999 shares inclusive), NYSE listed stocks exhibit larger changes in proportional effective spreads than NASDAQ stocks. Taken together, these findings are consistent with Barclay and Warners (1993) contention that stealth (medium-sized) trades are more likely based on private information and insider trades are more transparent on the NYSE specialist system relative to the NASDAQ dealer system. The results support the hypothesis by Benveniste, Marcus, and Wilhelm (1992) that the unique relationship between specialists and floor brokers on the NYSE leads to less anonymity.