How does spot-futures arbitrage affect the cash market?
Spot-futures arbitrage increases the flow of market orders to the cash market. This increases the revenues obtained by day traders who place limit orders, and induces an increased supply of limit orders. Limit orders are the ultimate source of liquidity on the market (indeed, low impact cost is synonymous with a thick limit order book which is highly populated with limit orders). Hence the introduction of spot-futures arbitrage will improve the liquidity on the cash market.
