Off-Exchange Intermediation - Price Aggressiveness of Systematic Internalisers

21 Pages Posted: 6 Jul 2014

See all articles by Peter Gomber

Peter Gomber

Goethe University Frankfurt Faculty of Economics and Business Administration

Kai Zimmermann

Goethe University Frankfurt Faculty of Economics and Business Administration

Date Written: July 4, 2014

Abstract

We study the pricing behavior of Systematic Internalisers (SIs), bilateral trading intermediaries that enable investment firms for explicit transaction cost savings and further price improvement opportunities as trading is executed outside traditional securities exchanges. Under the current European regulatory obligations, SIs are exposed to similar risk structures like exchange market makers, questioning an SI's willingness to actually provide beneficial executions and therefore relinquish appropriate risk compensation. Based on SI trade execution in 2009, we empirically analyze SI price aggressiveness and find beneficial executions in about 60 percent of our sample executions. However, we find indications that SIs actively manage their risk positions via their provision of price improvements and deteriorations. Inventory risk consideration strongly confine the provision of price improvements, while market risk considerations do not affect SI price aggressiveness negatively.

Keywords: MiFID, Electronic markets, Intermediation, Systematic Internlisers

JEL Classification: G10, G14, G15

Suggested Citation

Gomber, Peter and Zimmermann, Kai, Off-Exchange Intermediation - Price Aggressiveness of Systematic Internalisers (July 4, 2014). Available at SSRN: https://ssrn.com/abstract=2462479 or http://dx.doi.org/10.2139/ssrn.2462479

Peter Gomber

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.efinancelab.de/no_cache/team/?user_wiwipubs_pi2[showUid]=478

Kai Zimmermann (Contact Author)

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

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