The Effect of Crossing-Network Trading on Dealer Market's Bid-Ask Spreads
AbstractThis article provides new insights into market competition between traditional exchanges and alternative trading systems in Europe. It investigates the relationship between the trading activity of a crossing network (CN) and the liquidity of a traditional dealer market (DM) by comparing data from the SEAQ quote-driven segment of the London Stock Exchange (LSE) and internal data from the POSIT crossing network. A cross-sectional analysis of bid-ask spreads shows that DM spreads are negatively related to CN executions. Risk-sharing benefits from CN trading dominate fragmentation and cream-skimming costs. Further, risk-sharing gains are found to be related to dealer trading in the CN.
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Bibliographic InfoPaper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/2586.
Date of creation: 2006
Date of revision:
Publication status: Published in European Financial Management, 2006, Vol. 12, no. 2. pp. 143-160.Length: 17 pages
Bid-ask spread; Fragmentation; Liquidity; Dealer markets; Crossing networks; alternative trading systems; transaction costs; risk sharing; Stocks;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G19 - Financial Economics - - General Financial Markets - - - Other
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- Degryse, H.A. & Achter, M. van & Wuyts, G., 2007.
"Dynamic Order Submission Strategies with Competition between a Dealer Market and a Crossing Network,"
2007-017, Tilburg University, Tilburg Law and Economic Center.
- Degryse, Hans & Van Achter, Mark & Wuyts, Gunther, 2009. "Dynamic order submission strategies with competition between a dealer market and a crossing network," Journal of Financial Economics, Elsevier, vol. 91(3), pages 319-338, March.
- Hans Degryse & Mark Van Achter & Gunther Wuyts, 2004. "Dynamic order Submission Strategies with Competition between a Dealer Market and a Crossing Network," Center for Economic Studies - Discussion papers ces0415, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
- Hans Degryse & Mark Van Achter & Gunther Wuyts, 2007. "Dynamic order submission strategies with competition between a dealer market and a crossing network," Working Paper Research 121, National Bank of Belgium.
- Wei Cui & Anthony Brabazon & Michael O'Neill, 2011. "Dynamic trade execution: a grammatical evolution approach," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 2(1/2), pages 4-31.
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