Screen-based trading in futures markets: recent developments and research propositions

Screen-based futures markets are gaining trading volumes at the expense of traditional open outcry floor markets. In comparison with open outcry trading-used on the Chicago Board of Trade (CBOT), the world largest future market-electronic markets offer enhanced transparency, and greater access to users, who can enter orders directly. Screen markets can also maintain strict time priorities among submitted orders, and can provide incentives for users to place competitive orders and enhance the price discovery process. We describe several new screen-based markets, and examine in detail the Cantor Financial Futures Exchange (CFFE), a screen market for Treasury futures contracts. The CFFE trading rules and order matching algorithms are shown to provide important incentives to place competitive quotes and supply liquidity. The design of an experimental economics study of the two alternative market structures-open outcry and a screen mechanism-is described.