Are there any sure-fire ways to increase market-depth that people have experience with?

Has much research been done/published on this subject?

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    $\begingroup$ We need a bit of background here. What's your standpoint? Are you a broker? Are you an investor? $\endgroup$ – SRKX Aug 26 '13 at 17:54

Two general methods: you either need to increase general interest in the asset (i.e. increase volume) or make a mechanical change that will induce depth. Some obvious ways:

  • Increase the minimum spread so that depth increases at the inside (you see this effect in low price stocks, where the minimum tick size is a constraint).
  • Incentivize liquidity provision (e.g. maker taker model).
  • Change the matching algorithm, for instance, to pro-rata as it is in short-term interest rate futures.

Some of these changes may result in higher t-costs for liquidity takers, as they primarily provide incentives to middle-men (dealers, high-frequency traders).

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    $\begingroup$ Wow, you're back! $\endgroup$ – chrisaycock Aug 27 '13 at 3:57

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