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Equity Trading Practices and Market Structure: Assessing Asset Managers' Demand for Immediacy

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  • Nicholas Economides

    ()
    (New York University, NY 10012-1126., Stern School of Business)

  • Robert A. Schwartz,

Abstract

This paper summarizes the responses to a questionnaire sent to equity traders through TraderForum of the Institutional Investor. The respondents manage in total a very significant percentage of equity assets under management in the United States. The focus of the questions was the extent of the demand for immediate execution of orders. We found that the majority of traders are willing to trade patiently if this reduces execution costs. Many traders indicate that they frequently delay trades to obtain better prices. Most respondents indicate that they are typically given more than a day to implement a large order, that they typically break up more than 20% of their large orders for execution over time, and that they regularly take more than a day for a large order that has been broken into lots to be executed completely. There is a generally positive view of alternative electronic trading systems, such as Instinet and Investment Technology Group's POSIT. The key motives for trading on these systems are reduced market impact, lower spreads, better liquidity, and anonymity. The respondents indicate that the key changes that would make alternative electronic systems more attractive are an increase in execution rates and more convenient times of trading. The responses to the survey also show that alternative electronic systems would be used more if the traders did not have soft dollar arrangements.

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Bibliographic Info

Paper provided by Economics of Networks in its series Financial Networks with number 9508.

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Handle: RePEc:wop:ennefn:9508

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  1. Nicholas Economides & Robert A. Schwartz, . "Making the Trade: Equity Trading Practices and Market Structure - 1994," Financial Networks _003, Economics of Networks.
  2. Mildenstein, Eckart & Schleef, Harold J, 1983. " The Optimal Pricing Policy of a Monopolistic Marketmaker in the Equity Market," Journal of Finance, American Finance Association, vol. 38(1), pages 218-31, March.
  3. Amihud, Yakov & Mendelson, Haim, 1980. "Dealership market : Market-making with inventory," Journal of Financial Economics, Elsevier, vol. 8(1), pages 31-53, March.
  4. Nicholas Economides & Robert A. Schwartz, 1993. "Electronic Call Market Trading," Working Papers 93-19, New York University, Leonard N. Stern School of Business, Department of Economics.
  5. McInish, Thomas H. & Wood, Robert A., 1990. "An analysis of transactions data for the Toronto Stock Exchange : Return patterns and end-of-the-day effect," Journal of Banking & Finance, Elsevier, vol. 14(2-3), pages 441-458, August.
  6. Garman, Mark B., 1976. "Market microstructure," Journal of Financial Economics, Elsevier, vol. 3(3), pages 257-275, June.
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Cited by:
  1. Thierry Foucault, 2006. "Liquidité, coût du capital et organisation de la négociation des valeurs boursières," Revue d'Économie Financière, Programme National Persée, vol. 82(1), pages 123-138.
  2. Nicholas Economides, 1997. "The Economics of Networks," Industrial Organization 9701002, EconWPA.
  3. Iftekhar Hasan & Heiko Schmiedel, 2004. "Do networks in the stock exchange industry pay off? European evidence," International Finance 0405002, EconWPA.
  4. Thierry Foucault, 2006. "Liquidity, cost of capital and the organization of trading in stock markets," Revue d'Économie Financière, Programme National Persée, vol. 82(1), pages 113-123.
  5. THIESSEN, Eric, 2000. "Trader Anonymity, Price Formation and Liquidity," Les Cahiers de Recherche 701, HEC Paris.
  6. Nicholas Economides, 2004. "Competition Policy In Network Industries: An Introduction," Working Papers 04-24, NET Institute, revised Jun 2004.
  7. Liu, Wai-Man, 2009. "Monitoring and limit order submission risks," Journal of Financial Markets, Elsevier, vol. 12(1), pages 107-141, February.
  8. Jones, Charles M. & Lipson, Marc L., 2001. "Sixteenths: direct evidence on institutional execution costs," Journal of Financial Economics, Elsevier, vol. 59(2), pages 253-278, February.
  9. Erik Theissen, 2002. "Trader Anonymity, Price Formation and Liquidity," Bonn Econ Discussion Papers bgse20_2002, University of Bonn, Germany.
  10. Alexander, Gordon J. & Peterson, Mark A., 2007. "An analysis of trade-size clustering and its relation to stealth trading," Journal of Financial Economics, Elsevier, vol. 84(2), pages 435-471, May.

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