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

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  • Carole Gresse

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.

Suggested Citation

  • Carole Gresse, 2006. "The Effect of Crossing‐Network Trading on Dealer Market's Bid‐Ask Spreads," European Financial Management, European Financial Management Association, vol. 12(2), pages 143-160, March.
    • Handle: RePEc:bla:eufman:v:12:y:2006:i:2:p:143-160
    DOI: 10.1111/j.1354-7798.2006.00314.x
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    References listed on IDEAS

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    1. Victoria Saporta, 1997. "Which Inter-dealer Market Prevails? An analysis of inter-dealer trading in opaque markets," Bank of England working papers 59, Bank of England.
    2. Naes, Randi & Odegaard, Bernt Arne, 2006. "Equity trading by institutional investors: To cross or not to cross?," Journal of Financial Markets, Elsevier, vol. 9(2), pages 79-99, May.
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