Equity Trading by Institutional Investors: To Cross or Not to Cross

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Abstract
The proliferation of market places and trading methods is a striking feature of current equity markets. A stated goal of all the new trading arrangements is to reduce transaction costs. We investigate costs in one particular new market place, the crossing network. A crossing network is a satellite trading place; it uses prices derived from some primary market, and merely matches on quantity. Using special features of a data sample from a large institutional investor, we provide evidence that low measured costs in crossing networks are offset by substantial costs of non-trading. The costs of non-trading, which are related to adverse selection in the networks, are not reflected in standard measures of transaction costs.