Information Sharing, Liquidity and Transaction costs in Floor-Based Trading Systems
Thierry Foucault, Laurence Lescourret

Abstract
We consider information sharing between traders("floor brokers") who possess different types of information, namely information on the payoff of a risky security or information on the volume of liquidity trading in this security. We identify conditions under which these informed traders are better off sharing information. We also show that information sharing improves price discovery and reduces volatility. Information sharing can improve or impair the depth of the market, depending on the values of the parameters but it always reduces liquidity traders’ aggregate trading costs. Overall our analysis suggests that information sharing among floor brokers improves the performance of floor-based trading systems.

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