Do designated market makers improve liquidity in open-outcry futures markets

On February 1, 2002, the Chicago Board of Trade appointed a designated market maker to enhance liquidity in its 10-year interest rate swap futures contract. This market-making program is the first of its kind in the open-outcry futures industry. We find that introduction of the market maker has increased volume and reduced transaction costs. The market maker has also enhanced the speed and the efficiency of price discovery. Overall, the results suggest that the market-making program is successful in improving liquidity. (C) 2004 Wiley Periodicals, Inc.