Does Trading Anonymously Enhance Liquidity?

Patrick Dennis and Patrik Sandas

Is liquidity better when a trade counterparty’s brokerage firm is unknown (anonymous) or known (transparent)? We examine a quasi-natural experiment where some firms switched from transparent to anonymous trading and then, one year later, switched back. Our results for inside spread, price impact, and limit order book depth suggest that liquidity improves when anonymous post-trade reporting is introduced and liquidity worsens when anonymous post-trade reporting is reversed.