Anonymity and Order Submissions

We investigate the effect of the removal of broker identities on institutional and individual order submissions on the Australian Stock Exchange (ASX). We document declines in order aggressiveness and effective spreads for both institutional and individual investors after the switch to the anonymous trading system. Institutions are more willing to improve the best quotes than individuals, especially in the anonymous market. Anonymity also reduces the “picked off” risk for individual limit orders. Overall, our findings highlight the benefits of withholding brokers' IDs in the form of lower transaction costs and higher liquidity supply and thus support the ASX's decision to stop disclosing broker identity information.