Partial vs. Full Display Limit Orders: The Order Display Choice and its Effects on Order Management and Execution Quality

Abstract

This paper investigates endogenous order display in a stock market with liberal order display regulation. The analysis moves beyond the point in time of order submission. This facilitates a study of order display effects on limit order management and order execution quality. These aspects constitute two yet unexplored topics within the literature and both are of relevance to exchanges and liquidity suppliers. The analyses build on detailed order instruction data from the Copenhagen Stock Exchange. The data supports the decomposition of total limit order size into its displayed and hidden components and limit orders can be tracked through time. There is a significant effect from limit order size and standing same side depth on the probability of partial display and the display ratio, respectively. Partial display orders constitute a more persistent liquidity source than full display orders. Finally, order submitters must trade-off potential benefits associated with partial display against opportunity costs incurred in terms of lower fill rates and higher expected time to completion.