The cost of liquidity is the major cost of transacting on organised futures exchanges. Liquidity has value both to traders and to exchanges. This paper argues that liquidity varies directly with market development, and that this relationship provides a major incentive for mergers among...

A simple model, based on the binomial theorem, is employed to predict that the probability of matching buyers and sellers increases with the number of transactions. The ask-bid spread, interpreted as a measure of liquidity, is assumed to vary negatively with the probability of matching buyers...