Floor versus Electronic Trading of Government Bond Futures

This paper analyses the impact of a transition from open outcry to electronic trading in the UK Long Gilt futures market. Price clustering behaviour is not materially affected, but there is an increased concentration of large trades at more popular prices. After automation, narrower bid-ask spreads tend to be associated with relatively smaller trades. There is a substantial reduction in mean trade size as reduced-depth orders become trades. The mean daily number of transactions and quotations increases substantially, which is entirely consistent with static volumes and decreased mean trade size. Bid-ask spreads widen significantly after automation, which is largely accounted for by the finding that spreads under electronic systems demonstrate an increased sensitivity to price volatility. This effect is accentuated by increased volatility after automation. JEL Classification: G12, G15.