By comparing execution costs of trades handled by Amex floor brokers with trades entered through its automated post execution reporting (PER) system, this article provides evidence that floor brokers have value. Because they can opportunistically seize liquidity, using a floor broker is equivalent to placing a "smart" limit order. Overall, floor trades have a lower realized half-spread than PER trades (-3.06 bps vs. 4.43 bps). This finding holds for other measures of execution costs and is consistent across all order-size categories. The analysis of the value of intermediation in a securities market has implications for automated trading systems.
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Article provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 77 (2004) Issue (Month): 2 (April) Pages: 331-356 Download reference. The following formats are available: HTML
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