Pre-trade Transparency, Market Quality, and Informed Trading

We study the effects of a change from a pre-trade transparent limit order book to an anonymous electronic limit order book. We use the Probability of Informed Trading (PIN) as a proxy for the participation rate of informed traders to test a theoretical prediction of Foucault, Moinas, and Theissen (2007). However, we do not find significant explanatory power for the PIN measure in explaining bid-ask spreads after a change to anonymous trading. More generally, we do not find unambiguous evidence of an improvement in market quality, measured by bid-ask spreads, intraday volatility, and trading volume. We also find that there is no substantial change in upstairs trading