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Electronic Communications Networks and Market Quality
Michael J. Barclay University of Rochester - Simon School (Deceased) Terrence Hendershott University of California, Berkeley - Haas School of Business Tim McCormick U.S. Securities and Exchange Commission January 22, 2001 Simon School of Business Working Paper No. FR 00-19 Abstract: We compare the execution quality of trades with market makers to trades executed on Electronic Communications Networks (ECNs). Average quoted, realized, and effective spreads are smaller for ECN trades than for market-maker trades even though ECN trades are more informative than trades with market makers. Increased trading on ECNs also improves most measures of overall market quality. In the cross section, more ECN trading is associated with lower quoted, effective, and realized spreads, both overall and on trades with market makers. More ECN trading is also associated with less quoted depth.
JEL Classifications: G1, G2 Working Paper SeriesDate posted: May 18, 2001 ; Last revised: October 27, 2004Suggested CitationContact Information
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