Costs and Benefits of Trading with Stock Dealers: The Case of Systematic Internalizers

Posted: 27 Jun 2019 Last revised: 12 Apr 2021

See all articles by Fatemeh Aramian

Fatemeh Aramian

Stockholm University-Stockholm Business School

Lars L. Norden

Stockholm University - Stockholm Business School

Date Written: April 12, 2021

Abstract

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

Aramian, Fatemeh and Nordén, Lars L., Costs and Benefits of Trading with Stock Dealers: The Case of Systematic Internalizers (April 12, 2021). Available at SSRN: https://ssrn.com/abstract=3409878 or http://dx.doi.org/10.2139/ssrn.3409878

Fatemeh Aramian

Stockholm University-Stockholm Business School ( email )

Kräftriket 3
Stockholm, 11419
Sweden

Lars L. Nordén (Contact Author)

Stockholm University - Stockholm Business School ( email )

Sweden

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