原创力文档Competition among trading venues Information and trading on electronic communications netwo.pdf
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Competition among trading venues Information and trading on electronic communications netwo
Competition among Trading Venues: Information
andTrading on Electronic Communications Networks
MICHAEL J. BARCLAY,TERRENCE HENDERSHOTT,
and D.TIMOTHYMcCORMICK n
ABSTRACT
This paper explores the competition between two trading venues, Electronic
CommunicationNetworks (ECNs) andNasdaqmarket makers. ECNs o?er the
advantages of anonymity and speed of execution, which attract informed tra-
ders. Thus, trades are more likely to occur on ECNs when information asym-
metry is greater andwhen trading volume and stock-returnvolatilityare high.
ECN trades have greater permanent price impacts and more private informa-
tion is revealed through ECN trades than though market-maker trades. How-
ever, ECN trades havehigher ex ante tradingcosts becausemarketmakers can
preference or internalize the less informed trades and o?er them better execu-
tions.
TECHNOLOGICAL INNOVATIONS THAT ENABLE HIGH-SPEED, low-cost electronic trading
systems are dramatically changing the structure of ￠nancial markets. Ex-
changes and markets around the world are merging or forming alliances to im-
prove liquidity and reduce costs in the face of increased competition from each
other and from these computerized trading systems.Trading volume on Electro-
nic 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
THE JOURNAL OF FINANCE VOL. LVIII, NO. 6 DECEMBER 2003
nBarclay is at the Simon School of Business, University of Rochester; Hendershott is at the
Haas School of Business, University of California at Berkeley; and McCormick is at Nasdaq
Economic Research.We thank Rick Green (the editor), an anonymous referee, Robert Batta-
lio, Ken Kavajecz, and seminar participants at the Financial Markets Research Center Con-
ference on Market Quality at Vanderbilt University, Notre Dame University, the University of
California at Berkeley, the University of
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