How Brokers Facilitate Trade for Long-Term Clients in Competitive Securities Markets

JOURNAL OF BUSINESS, January 1995

Posted: 20 Dec 1998

See all articles by Michael J. Aitken

Michael J. Aitken

Macquarie Graduate School of Management

Peter L. Swan

University of New South Wales (UNSW Sydney; Financial Research Network (FIRN)

Gerald T. Garvey

Blackrock

Abstract

In adverse-selection models of security market microstructure, a market-maker could enhance efficieny if he were willing to sustain short-term trading losses. We show that this deniable activity, which we term "facilitation", can be supported as a self-enforcing agreement between brokers-dealers and long-lived clients. The model predicts that brokers who provide facilitation services should also charge HIGHER (author's emphasis) fees to long-term clients for trades where the broker merely receives a commission. This prediction receives support from an analysis of brokerage rates on the Australian Stock Exchange. In addition, brokers who do not appear to provide facilitation services LOWER (author's emphasis) agency fees to large long-term clients.

JEL Classification: G15, G38

Suggested Citation

Aitken, Michael J. and Swan, Peter Lawrence and Garvey, Gerald T., How Brokers Facilitate Trade for Long-Term Clients in Competitive Securities Markets. JOURNAL OF BUSINESS, January 1995. Available at SSRN: https://ssrn.com/abstract=5433

Michael J. Aitken

Macquarie Graduate School of Management ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Peter Lawrence Swan (Contact Author)

University of New South Wales (UNSW Sydney ( email )

School of Banking and Finance
UNSW Business School
Sydney NSW, NSW 2052
Australia
+61 2 9385 5871 (Phone)
+61 2 9385 6347 (Fax)

HOME PAGE: http://https://www.business.unsw.edu.au/our-people/peterswan

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Gerald T. Garvey

Blackrock ( email )

Level 37, Chifley Tower
2 Chfiley Square
Sydney, NSW 2000
Australia
+61 2 9272 2388 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
1,030
PlumX Metrics