Electronic Communications Networks and Market Quality
Preprint
- 22 January 2001
- preprint
- Published by Elsevier in SSRN Electronic Journal
Abstract
We compare the execution quality of trades with market makers to trades executed on Electronic Communications Networks (ECNs). Average quoted, realized, and effective spreads are smaller for ECN trades than for market-maker trades even though ECN trades are more informative than trades with market makers. Increased trading on ECNs also improves most measures of overall market quality. In the cross section, more ECN trading is associated with lower quoted, effective, and realized spreads, both overall and on trades with market makers. More ECN trading is also associated with less quoted depth.Keywords
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