This paper investigates the market microstructure of the Taiwan Stock Exchange Capitalization weighted Stock Index (TX) futures contracts traded on the Taiwan Futures Exchange which quite recently switched from an electronic periodic call auction market to an electronic continuous auction market. No doubt it is a rare opportunity for us to deeply look into market quality under different trading mechanisms. Using time-stamped transaction data of trades and quotes covering the period from January 2001 to September 2002, overall behavior for all TX Futures contracts are explored first—including intraday and daily patterns in the bid-ask spreads, volume, trade size, volatility, liquidity ratio and other characteristics. Next, in order to observe whether long-term contracts and short-term contracts have different patterns, the sample is divided into two groups—quarterly expiration contract months (March, June, September, and December) and non-quarterly expiration contract months, and the intraday/daily patterns are displayed. Moreover, since TAIFEX transferred trading mechanism on July 29th 2002 from an electronic periodic call auction market to an electronic continuous auction market, intraday/daily patterns are separately illustrated and compared before and after July 29th 2002, and ANOVA F-Statistic and Kruskal-Wallis tests are also taken to provide more insights into time-varying behavior under two different kinds of market trading mechanisms. The empirical results indicate that the most active periods correspond to the TAIFEX’Ss opening five-minute interval (8:45-8:50), TSEC’Ss opening five-minute interval (9:00-9:05), and TAIFEX’S closing five-minute interval (13:40-13:45) with wide spreads and large trade sizes. In 54 five-minute intervals for the regular trading session of both TAIFEX and TSEC from 9:00 a.m. to 1:30 p.m., the behavior of spreads, volume and trade sizes mainly reveal U-shaped patterns. The average trading volume within each time interval plunges, except within the final 5 minutes closing procedure interval, after TAIFEX transferred trading mechanism from an electronic periodic call auction market to an electronic continuous auction market with wider spreads and narrower volatility, in general. Moreover, intraday patterns of the average volume under new microstructure exhibit a right angular U-shape while intraday patterns of volume under old microstructure reveal a smooth U-shape. The evidence suggests a conjecture that the transfer of market trading mechanism might result in informed traders’ altering their intraday behavior and might lessening their trading desire. Further evidence in confirmation of this statement is left to future work. / This paper investigates the market microstructure of the Taiwan Stock Exchange Capitalization weighted Stock Index (TX) futures contracts traded on the Taiwan Futures Exchange which quite recently switched from an electronic periodic call auction market to an electronic continuous auction market. No doubt it is a rare opportunity for us to deeply look into market quality under different trading mechanisms. Using time-stamped transaction data of trades and quotes covering the period from January 2001 to September 2002, overall behavior for all TX Futures contracts are explored first—including intraday and daily patterns in the bid-ask spreads, volume, trade size, volatility, liquidity ratio and other characteristics. Next, in order to observe whether long-term contracts and short-term contracts have different patterns, the sample is divided into two groups—quarterly expiration contract months (March, June, September, and December) and non-quarterly expiration contract months, and the intraday/daily patterns are displayed. Moreover, since TAIFEX transferred trading mechanism on July 29th 2002 from an electronic periodic call auction market to an electronic continuous auction market, intraday/daily patterns are separately illustrated and compared before and after July 29th 2002, and ANOVA F-Statistic and Kruskal-Wallis tests are also taken to provide more insights into time-varying behavior under two different kinds of market trading mechanisms. The empirical results indicate that the most active periods correspond to the TAIFEX’Ss opening five-minute interval (8:45-8:50), TSEC’Ss opening five-minute interval (9:00-9:05), and TAIFEX’S closing five-minute interval (13:40-13:45) with wide spreads and large trade sizes. In 54 five-minute intervals for the regular trading session of both TAIFEX and TSEC from 9:00 a.m. to 1:30 p.m., the behavior of spreads, volume and trade sizes mainly reveal U-shaped patterns. The average trading volume within each time interval plunges, except within the final 5 minutes closing procedure interval, after TAIFEX transferred trading mechanism from an electronic periodic call auction market to an electronic continuous auction market with wider spreads and narrower volatility, in general. Moreover, intraday patterns of the average volume under new microstructure exhibit a right angular U-shape while intraday patterns of volume under old microstructure reveal a smooth U-shape. The evidence suggests a conjecture that the transfer of market trading mechanism might result in informed traders’ altering their intraday behavior and might lessening their trading desire. Further evidence in confirmation of this statement is left to future work.

This paper refers to Ma and Hung(2004) using the amount of the institutional investors to measure the competitions of trading and the order flows of the institutional investors to measure correlations of information. We filter the data on daily basis and divide the data into four groups: high competition and high correlation, high competition and low correlation, low competition and high correlation, and low competition and low correlation. From the measurements of the informed traders¡¦ intraday behavior, we find that in the sample of high competitions of trading, the informed traders trade aggressively to exploit the common private information in the early period; In the middle period, since the common private information has been revealed to the market, the informed traders trade passively to avoid other informed traders knowing his private information; In the later period, the informed trader trade aggressively again to consume their private information before the market close. So, when trading these stocks, uninformed individual investors should avoid entering the market in the early and the later periods because of the high adverse selection cost. Besides, when prior return increases (decreases), the informed traders tend to place buy (sell) orders, indicating the informed traders are momentum traders. Last but not least, we observe in the sample of low competition and low correlation, the foreign investors behave differently in intraday strategy. Given the increasing of prior return, the buy (sell) orders of the foreign investors become passive (aggressive) in the early period, but in the later period, the buy (sell) orders of the foreign investors turn to be more aggressive (passive) with the increasing of prior return. The result may relate to the strategy of proprietary traders. For this reason, when trading these stocks, uninformed individual investors should avoid following the large orders and the momentum strategy in the early period.