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Floor versus Screen Trading : Evidence from the German Stock Market

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  • THEISSEN, Erik

Abstract

The last decade has witnessed a dramatic increase in both the number and the market share of screen-based trading systems. Electronic trading systems do offer lower operating costs and the possiblilty of remote access to the market. On the other hand, arguments based on the anonymity of electronic trading systems suggest that adverse selection may be a more severe problem and that, therefore, bid-ask spreads may be higher. The present paper addresses the issue of transaction costs in floor and computerized trading systems empirically. In Germany, floor and screen trading for the same stocks exist in parallel. Both markets are liquid and operate simultaneously for several hours each day. An analysis of the bid-ask spreads reveals that the electronic trading system is relatively less attractive for less liquid stocks. The market shares of the competing systems reveal a similar pattern. The market share of the electronic trading system is negatively related to the total trading volume of the stock, is positively related to the difference between spreads on the floor and in the screen trading system and is at least partially negatively related to return volatility. We further document that spreads in the electronic trading system respond more heavily to changes in return volatility and that the adverse selection component of the spread is larger. We discuss implications our results have for the design of electronic trading systems.

Suggested Citation

  • THEISSEN, Erik, 1999. "Floor versus Screen Trading : Evidence from the German Stock Market," Les Cahiers de Recherche 690, HEC Paris.
  • Handle: RePEc:ebg:heccah:0690
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Grammig, Joachim & Schiereck, Dirk & Theissen, Erik, 2001. "Knowing me, knowing you: : Trader anonymity and informed trading in parallel markets," Journal of Financial Markets, Elsevier, vol. 4(4), pages 385-412, October.
    2. Laurence Lescourret & Thierry Foucault, 2001. "Information Sharing Liquidity and Transaction Costs in Floor-Based Trading Systems," Working Papers 2001-18, Center for Research in Economics and Statistics.
    3. Theissen, Erik, 2002. "Price discovery in floor and screen trading systems," Journal of Empirical Finance, Elsevier, pages 455-474.
    4. Kehr, Carl-Heinrich & Krahnen, Jan P. & Theissen, Erik, 2001. "The Anatomy of a Call Market," Journal of Financial Intermediation, Elsevier, pages 249-270.
    5. Theissen, Erik, 2002. "Price discovery in floor and screen trading systems," Journal of Empirical Finance, Elsevier, vol. 9(4), pages 455-474, November.
    6. 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.
    7. Pinder, Sean, 2003. "An empirical examination of the impact of market microstructure changes on the determinants of option bid-ask spreads," International Review of Financial Analysis, Elsevier, vol. 12(5), pages 563-577.
    8. Duong, Huu Nhan & Kalev, Petko S., 2013. "Anonymity and order submissions," Pacific-Basin Finance Journal, Elsevier, pages 101-118.
    9. repec:eee:ecmode:v:65:y:2017:i:c:p:9-17 is not listed on IDEAS
    10. Erik Theissen, 2003. "Trader Anonymity, Price Formation and Liquidity," Review of Finance, European Finance Association, vol. 7(1), pages 1-26.
    11. Bikker, Jacob A. & Spierdijk, Laura & van der Sluis, Pieter Jelle, 2007. "Market impact costs of institutional equity trades," Journal of International Money and Finance, Elsevier, vol. 26(6), pages 974-1000, October.
    12. Christiane Goodfellow & Martin T. Bohl, 2011. "Forestalling Floor Closure: Evidence from a Natural Experiment on the German Stock Market," Post-Print hal-00676103, HAL.
    13. Comerton-Forde, Carole & Tang, Kar Mei, 2009. "Anonymity, liquidity and fragmentation," Journal of Financial Markets, Elsevier, vol. 12(3), pages 337-367, August.
    14. Erik Theissen, 2003. "Trader Anonymity, Price Formation and Liquidity," Review of Finance, European Finance Association, vol. 7(1), pages 1-26.

    More about this item

    Keywords

    Electronic trading systems; anonymity; bid-ask spreads; adverse selection costs;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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