Execution Costs and Their Intraday Variation in Futures Markets

We consider trading costs in the transparent, competitive open outcry markets of the Chicago Mercantile Exchange (CME), in which market makers have no affirmative obligation to trade. We document that while CME spreads are similar in magnitude to those in other markets, realized spreads are often negative. A plausible explanation is that CME market makers are able to employ more complex trading strategies than their equity market counterparts because they are not bound by affirmative obligation. The evidence suggests that market transparency and market maker obligations are important determinants of intraday variation in trading costs.