How is futures trading affected by the move to a computerized trading system? Lessons from the LIFFE FTSE 100 contract

We consider the impact of the May 1999 move to screen trading of the LIFFE FTSE 100 index futures contract. This resulted in a narrowing of the effective spread. Spread determinants are broadly similar in the open outcry and screen trading regimes. The narrowing of the spread appears due to increased competition among traders and a decline in tick-level volatility rather than to the way these or other variables affect the spread. Market depth appears largely unaffected. Under screen trading, realized spreads widen as the consequence of a greater number of limit orders being taken up rather than in relation to any change in order size.