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Competition among trading venues: Information and trading on electronic communications networks (2003)
| Venue: | Journal of Finance |
| Citations: | 56 - 5 self |
BibTeX
@ARTICLE{Barclay03competitionamong,
author = {Michael J. Barclay and Terrence Hendershott and D. Timothy Mccormick N},
title = {Competition among trading venues: Information and trading on electronic communications networks},
journal = {Journal of Finance},
year = {2003},
volume = {58},
pages = {2637--2665}
}
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Abstract
This paper explores the competition between two trading venues, Electronic Communication Networks (ECNs) and Nasdaq market makers. ECNs o¡er the advantages of anonymity and speed of execution, which attract informed traders. Thus, trades are more likely to occur on ECNs when information asymmetry is greater and when trading volume and stock-return volatility are high. ECN trades have greater permanent price impacts and more private information is revealed through ECN trades than though market-maker trades. However, ECN trades have higher ex ante trading costs because market makers can preference or internalize the less informed trades and o¡er them better executions. TECHNOLOGICAL INNOVATIONS THAT ENABLE HIGH-SPEED, low-cost electronic trading systems are dramatically changing the structure of ¢nancial markets. Exchanges and markets around the world are merging or forming alliances to improve liquidity and reduce costs in the face of increased competition from each other and from these computerized trading systems.Trading volume on Electronic Communications Networks (ECNs) has grown rapidly over the past several years. ECNs are now involved in more than a third of Nasdaq trading volume and are attempting to increase their market share in NYSE-listed
Keyphrases
electronic communication network trading venue ecn trade trading volume ex ante trading cost past several year technological innovation enable high-speed low-cost electronic trading system nasdaq trading volume nasdaq market maker private information information asymmetry stock-return volatility computerized trading system nancial market permanent price impact informed trade market-maker trade market maker market share
