Is Best Really BETTER? Internalization of Orders in an Open Limit Order Book
We study the market quality of the Xetra BEST system operated by Deutsche Börse AG, an internalization system designed as part of an open limit order book, which guarantees a price improvement over the inside spread in the Xetra order book. We develop a structural model of this dual market environment and show that adverse selection costs of internalized trades are significantly lower than those of regular order book trades while realized spreads are significantly larger. The cost savings of the internalizer are larger than the mandatory price improvement, suggesting that internalization can be profitable for both customer and internalizer.
Volume (Year): 64 (2012)
Issue (Month): 2 (April)
|Contact details of provider:|| Postal: Geschwister-Scholl-Platz 1, 80539 Muenchen|
Phone: 0049 89 2180 2166
Fax: 0049 89 2180 6327
Web page: http://www.sbr-online.com
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:sbr:abstra:v:64:y:2012:i:2:p:82-100. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (sbr)The email address of this maintainer does not seem to be valid anymore. Please ask sbr to update the entry or send us the correct email address
If references are entirely missing, you can add them using this form.