The Cost of Trade Execution Services in Futures Markets
LUKE GARETH BORTOLI*, ALEX FRINO† AND ELVIS JARNECIC‡
Finance Discipline, School of Business,
Faculty of Economics and Business,
University of Sydney,
NSW, 2006, Australia
Abstract
This paper provides new evidence on the magnitude and determinants of brokerage commissions
in futures markets using a sample of brokerage fees charged to transactions on the Sydney
Futures Exchange. Commission fees charged on futures trades average 0.002 percent of
transaction value. This is up to 120 times smaller than the magnitude of brokerage fees charged
in stock markets, and considerably lower than the magnitude of brokerage fees assumed for
futures markets in previous research. Consistent with existing studies based on stock markets,
commissions charged per contract decrease with order size reflecting economies of scale in the
provision of brokerage services in futures markets. Commission rates are positively related to
bid-ask spreads and price volatility, which proxy for the probability of execution error costs and
execution difficulty, respectively. The identity of the broker is a significant determinant of
commissions reflecting different pricing schedules across brokers. Finally, the sample period
examined in this study covered the period of transition to electronic trading on the Sydney
Futures Exchange. There is strong evidence that the introduction of electronic trading is
associated with lower brokerage commissions relative to floor traded markets.
Key words: Commission rates; Brokerage; Automation; Futures;
*Corresponding author. Finance Discipline, Faculty of Economics and Business, University of Sydney, NSW, 2006,
Australia; Tel: (612) 9256 0147; Fax: (612) 9299 1830; Email: luke@sirca.com.
†Professor and Head of Finance Discipline, School of Business, Faculty of Economics and Business, University of
Sydney in Australia.
‡Senior Lecturer, School of Banking and Finance, University of New South Wales, NSW, Australia, 2052
This research was funded by an Australian Research Collaborative Grant (No. C59700105) involving the Sydney
Futures Exchange. We gratefully acknowledge the programming assistance of Nic McGilvray and the helpful
comments of the people at the Securities Industry Research Centre of Asia-Pacific (SIRCA) as well as the
participants at the workshop held by the Research and Development Division of the Sydney Futures Exchange.
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