Electronic trading, liquidity and information efficiency: Evidence from the Montreal Exchange

This paper studies the deviation spread of the Equity Index S&P/TSX 60 Futures Contract SXF's daily price from the Cost of Carry Model before and after the contract is launched on the electronic trading platform in the Montreal Exchange. The relative stability of the deviation spread after the introduction of electronic trading shows strong market efficiency improvement. Besides this, after examining the relationship of the deviation spread with the trading volume and some other information sources generated on the trading venue before and after the introduction of the electronic trading, it is found that electronic trading greatly mitigates these information sources' adverse impacts on the spread's stability. This empirical evidence suggests that the information efficiency facilitated by the electronic trading may not conflict with the liquidity enhancement in the public exchange organization.