Costs and Benefits of Trading with Stock Dealers: The Case of Systematic Internalizers
Posted: 27 Jun 2019 Last revised: 12 Apr 2021
Date Written: April 12, 2021
Systematic Internalizers are investment firms that act as dealers and trade out of their own inventories by internalizing the trades off exchanges. We analyze the extent to which traders’ stock transactions occur with dealers and the associated costs. Traders’ choice between dealers and exchanges boils down to the relative trading costs. Our results show that dealer trades have lower price impact than exchange trades, which is consistent with that primarily uninformed traders are seeking out dealers. We also find that dealers frequently improve on the best exchange bid and ask quotes when it is possible.
Keywords: Equity Markets, Dealers, Exchanges, Trading Costs, Systematic Internalizers
JEL Classification: G14, G15, G10
Suggested Citation: Suggested Citation