Transparency & Quality: The Impact of Increasing Limit Order Book levels on Tehran Stock Exchange

One of the common tools used to make pre-trade transparency in financial markets is the Limit Order Book. In spite of several researches on the Limit Order Book, there is no consensus about the impact of increasing pre-trade transparency on market quality. Increasing the number of Limit Order Book levels from 3 to 5 levels, in May 2017, for online traders in Tehran Stock Exchange, gave us the opportunity to study the issue. In this paper, based on the even study, we examined the impact of transparency of Limit Order Book on market quality using Quoted Spread, Effective Spread, Market Depth and Return Standard Deviation. According to the results, after increasing the number of Limit Order Book levels in Tehran Stock Exchange, there was a significant decrease among all of the selected criteria with the exception of Market Depth. The results indicated that increasing the number of Limit Order Book’s levels for online traders in Tehran Stock Exchange led to deterioration in the market quality.