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The Effect of Crossing-Network Trading on Dealer Market's Bid-Ask Spreads

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  • Carole Gresse

Abstract

"This 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." Copyright Blackwell Publishers Ltd, 2006.

Suggested Citation

  • Carole Gresse, 2006. "The Effect of Crossing-Network Trading on Dealer Market's Bid-Ask Spreads," European Financial Management, European Financial Management Association, vol. 12(2), pages 143-160.
  • Handle: RePEc:bla:eufman:v:12:y:2006:i:2:p:143-160
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    References listed on IDEAS

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    1. Naes, Randi & Odegaard, Bernt Arne, 2006. "Equity trading by institutional investors: To cross or not to cross?," Journal of Financial Markets, Elsevier, vol. 9(2), pages 79-99, May.
    2. Victoria Saporta, 1997. "Which Inter-dealer Market Prevails? An analysis of inter-dealer trading in opaque markets," Bank of England working papers 59, Bank of England.
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    Cited by:

    1. repec:dau:papers:123456789/7685 is not listed on IDEAS
    2. Apergis, Nicholas & Voliotis, Dimitrios, 2015. "Spillover effects between lit and dark stock markets: Evidence from a panel of London Stock Exchange transactions," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 101-106.
    3. 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.
    4. He, William Peng & Lepone, Andrew, 2014. "Determinants of liquidity and execution probability in exchange operated dark pool: Evidence from the Australian Securities Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 30(C), pages 1-16.
    5. Daniëls, Tijmen R. & Dönges, Jutta & Heinemann, Frank, 2013. "Crossing network versus dealer market: Unique equilibrium in the allocation of order flow," European Economic Review, Elsevier, vol. 62(C), pages 41-57.
    6. Degryse, H.A. & de Jong, F.C.J.M. & van Kervel, V.L., 2011. "The Impact of Dark and Visible Fragmentation on Market Quality (Replaces CentER Discussion Paper 2011-051)," Discussion Paper 2011-069, Tilburg University, Center for Economic Research.
    7. repec:dau:papers:123456789/8775 is not listed on IDEAS
    8. Gomber, Peter & Sagade, Satchit & Theissen, Erik & Weber, Moritz Christian & Westheide, Christian, 2016. "Spoilt for choice: Order routing decisions in fragmented equity markets," CFR Working Papers 16-04, University of Cologne, Centre for Financial Research (CFR).
    9. Gomber, Peter & Sagade, Satchit & Theissen, Erik & Weber, Moritz Christian & Westheide, Christian, 2013. "Competition/fragmentation in equities markets: A literature survey," SAFE Working Paper Series 35, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    10. Linlin Ye, 2016. "Understanding the Impacts of Dark Pools on Price Discovery," Papers 1612.08486, arXiv.org.
    11. Carole Gresse, 2011. "Effects of Lit and Dark Market Fragmentation on Liquidity," Post-Print halshs-00641122, HAL.
    12. 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.
    13. repec:eee:finmar:v:35:y:2017:i:c:p:1-20 is not listed on IDEAS
    14. van Kervel, V.L., 2013. "Competition between stock exchanges and optimal trading," Other publications TiSEM 5c608a0f-527d-441d-a910-e, Tilburg University, School of Economics and Management.
    15. repec:eee:ecmode:v:65:y:2017:i:c:p:9-17 is not listed on IDEAS
    16. Carole Gresse, 2013. "Effects of Lit and Dark Trading Venue Competition on Liquidity : The MiFID Experience," Post-Print hal-01632517, HAL.

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