Market structure and trader anonymity: An analysis of insider trading

This paper examines the degree of anonymity-the extent to which a trader is recognized as informed-on alternative market structures. We find evidence that is consistent with less anonymity on the NYSE specialist system compared to the NASDAQ dealer system. Specifically, when corporate insiders trade medium-sized quantities (500-9,999 shares inclusive), NYSE listed stocks exhibit larger changes in proportional effective spreads than NASDAQ stocks. Taken together, these findings are consistent with Barclay and Warner's (1993) contention that stealth (medium-sized) trades are more likely based on private information and insider trades are more transparent on the NYSE specialist system relative to the NASDAQ dealer system. The results support the hypothesis by Benveniste, Marcus, and Wilhelm (1992) that the unique relationship between specialists and floor brokers on the NYSE leads to less anonymity.