The Effect of Anonymity on Price Efficiency : Evidence from the Removal of Broker Identities

We show that broker identities are important for price formation. We use the removal of broker identities by the ASX on November 28th 2005 as a natural experiment and compare the information signal of broker identities before and after its removal. We find that broker identities have significant information content, which reduces after the market becomes anonymous. The reduction in the information content of broker identities is larger during periods of high adverse selection costs, such as during days with price-sensitive corporate announcements. Overall, whilst anonymity may provide various ancillary benefits, our evidence suggests that removing broker identities reduces the informativeness of order flow and thus the anonymous market can be costly for uninformed investors