The Effect of Crossing Network Trading on Dealer Market's Bid-Ask Spreads

Carole Gresse ()
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Carole Gresse: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: 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.

Keywords: crossing network; dealer market; liquidity; fragmentation; bid-ask spread (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (22)

Published in European Financial Management, 2006, 12 (2), pp.143-160

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00145266

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