18 Pages Posted: 8 May 2006
This article provides new insights into market competition between traditional exchanges and alternative trading systems in Europe. It investigates the relationship between the trading activity of a crossing network (CN) and the liquidity of a traditional dealer market (DM) by comparing data from the SEAQ quote-driven segment of the London Stock Exchange (LSE) and internal data from the POSIT crossing network. A cross-sectional analysis of bid-ask spreads shows that DM spreads are negatively related to CN executions. Risk-sharing benefits from CN trading dominate fragmentation and cream-skimming costs. Further, risk-sharing gains are found to be related to dealer trading in the CN.
Suggested Citation: Suggested Citation
Gresse, Carole, The Effect of Crossing-Network Trading on Dealer Market's Bid-Ask Spreads. European Financial Management, Vol. 12, No. 2, pp. 143-160, March 2006. Available at SSRN: https://ssrn.com/abstract=884279 or http://dx.doi.org/10.1111/j.1354-7798.2006.00314.x
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