Electronic Communications Networks and Market Quality

40 Pages Posted: 18 May 2001

See all articles by Michael J. Barclay

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

Date Written: January 22, 2001

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 Classification: G1, G2

Suggested Citation

Barclay, Michael J. and Hendershott, Terrence J. and McCormick, Tim, Electronic Communications Networks and Market Quality (January 22, 2001). Simon School of Business Working Paper No. FR 00-19. Available at SSRN: https://ssrn.com/abstract=257486 or http://dx.doi.org/10.2139/ssrn.257486

Michael J. Barclay (Contact Author)

University of Rochester - Simon School (Deceased)

N/A

Terrence J. Hendershott

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Tim McCormick

U.S. Securities and Exchange Commission ( email )

United States Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549
United States
202-551-6633 (Phone)

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