The Economic Value of a Trading Floor: Evidence from the American Stock Exchange
37 Pages Posted: 20 Jul 2002
There are 2 versions of this paper
The Economic Value of a Trading Floor: Evidence from the American Stock Exchange
The Economic Value of a Trading Floor: Evidence from the American Stock Exchange
Date Written: April 2002
Abstract
This paper provides evidence that floor brokers add value that helps offset the higher cost of accessing the trading floor, making it a desirable venue for orders requiring more careful handling. We compare execution costs of non-block trades handled by Amex floor brokers with trades entered through its automated Post Execution Reporting (PER) system. Essentially, because floor traders can opportunistically seize liquidity without showing their hands too quickly, using a floor broker is equivalent to placing a 'smart' limit order. Overall, floor trades have a lower realized half-spread than PER trades (-3.06 bps versus 4.43 bps). This finding holds for other measures of execution costs as well and is consistent across all order-size categories. The light our findings shed on the value of intermediation in security markets also has implications for automated trading systems.
Keywords: Floor trading, Automated trading, Execution costs
JEL Classification: G12
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Lifting the Veil: An Analysis of Pre-Trade Transparency at the NYSE
By Ekkehart Boehmer, Gideon Saar, ...
-
Lifting the Veil: An Analysis of Pre-Trade Transparency at the Nyse
By Ekkehart Boehmer, Gideon Saar, ...
-
Does Anonymity Matter in Electronic Limit Order Markets?
By Thierry Foucault, Sophie Moinas, ...
-
Does Anonymity Matter in Electronic Limit Order Markets?
By Thierry Foucault, Sophie Moinas, ...
-
Island Goes Dark: Transparency, Fragmentation, Liquidity Externalities, and Multimarket Regulation
-
Reputation Effects in Trading on the New York Stock Exchange
By Andrew Ellul, Robert H. Battalio, ...
-
Lack of Anonymity and the Inference from Order Flow
By Juhani T. Linnainmaa and Gideon Saar
-
The Impact of Limit Order Anonymity on Liquidity: Evidence from Paris, Tokyo and Korea
By Carole Comerton-forde, Alex Frino, ...
-
Market Architecture and Global Exchange Efficiency: One Design Need not Fit all Stock Sizes