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

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  • Nicholas Economides
  • 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.

Suggested Citation

  • Nicholas Economides & Robert A. Schwartz, 1995. "Equity Trading Practices and Market Structure: Assessing Asset Managers' Demand for Immediacy," Working Papers 95-08, New York University, Leonard N. Stern School of Business, Department of Economics.
  • Handle: RePEc:ste:nystbu:95-08
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    References listed on IDEAS

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    1. Amihud, Yakov & Mendelson, Haim, 1980. "Dealership market : Market-making with inventory," Journal of Financial Economics, Elsevier, vol. 8(1), pages 31-53, March.
    2. Garman, Mark B., 1976. "Market microstructure," Journal of Financial Economics, Elsevier, vol. 3(3), pages 257-275, June.
    3. Nicholas Economides & Robert Schwartz,, "undated". "Electronic Call Market Trading," Financial Networks _001, Economics of Networks.
    4. 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 218-231, March.
    5. Nicholas Economides & Robert A. Schwartz, "undated". "Making the Trade: Equity Trading Practices and Market Structure - 1994," Financial Networks _003, Economics of Networks.
    6. 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.
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    Cited by:

    1. Nicholas Economides, 2006. "Competition Policy in Network Industries: An Introduction," Chapters,in: The New Economy and Beyond, chapter 5 Edward Elgar Publishing.
    2. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    3. 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.
    4. Jones, Charles M. & Lipson, Marc L., 1999. "Execution Costs of Institutional Equity Orders," Journal of Financial Intermediation, Elsevier, vol. 8(3), pages 123-140, July.
    5. 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.
    6. 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.
    7. Hasan, Iftekhar & Schmiedel, Heiko, 2003. "Do networks in the stock exchange industry pay off? : European evidence," Research Discussion Papers 2/2003, Bank of Finland.
    8. 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.
    9. THIESSEN, Eric, 2000. "Trader Anonymity, Price Formation and Liquidity," Les Cahiers de Recherche 701, HEC Paris.
    10. Eric Benhamou & Thomas Serval, 2000. "On the Competition Between ECNs, Stock Markets and Market Makers," FMG Discussion Papers dp345, Financial Markets Group.
    11. Erik Theissen, 2003. "Trader Anonymity, Price Formation and Liquidity," Review of Finance, European Finance Association, vol. 7(1), pages 1-26.
    12. Liu, Wai-Man, 2009. "Monitoring and limit order submission risks," Journal of Financial Markets, Elsevier, vol. 12(1), pages 107-141, February.

    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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