Is the London Market Competitive? A Study of Trading Behavior of London Market Makers

40 Pages Posted: 4 Nov 2000  

Rosita P. Chang

University of Hawaii - Department of Financial Economics and Institutions

Chunlin Liu

University of Rhode Island

S. Ghon Rhee

University of Hawaii - Shidler College of Business; University of Hawaii - Department of Financial Economics and Institutions

Date Written: December 2000

Abstract

A Study of Trading Behavior of London Market Makers Abstract This study examines the competitiveness of the London Stock Exchange (LSE) on the basis of trading activities of different market makers for a sample of FTSE-100 component stocks. Specifically, the relations studied between market shares of individual market makers and their price- and quantity-setting behavior, preferenced trading activities, and trading profitability infer the competitiveness of the London market. The results show that market makers can obtain relative larger shares of public order flows through posting more competitive prices with greater quote depths. No evidence is found to support that preferenced trading distort the market shares of trading among market makers because it is limited to small-sized trades. However, this study does suggest that those market makers who takes more trading risks are not only rewarded with larger market shares of public order flows but also compensated with higher spread profit margins. The overall findings from the study indicate that the LSE is a competitive dealership market.

Suggested Citation

Chang, Rosita P. and Liu, Chunlin and Rhee, S. Ghon, Is the London Market Competitive? A Study of Trading Behavior of London Market Makers (December 2000). EFMA 2000 Athens. Available at SSRN: https://ssrn.com/abstract=246457 or http://dx.doi.org/10.2139/ssrn.246457

Rosita P. Chang (Contact Author)

University of Hawaii - Department of Financial Economics and Institutions ( email )

2404 Maile Way
Honolulu, HI 96822
United States

Chunlin Liu

University of Rhode Island ( email )

Kingston, RI 02881
United States

S. Ghon Rhee

University of Hawaii - Shidler College of Business ( email )

2404 Maile Way
C-304, FEI/CBA
Honolulu, HI 96822
United States

University of Hawaii - Department of Financial Economics and Institutions ( email )

United States

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