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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/14251
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| Title: | TRANSPARENCY AND BYPASS IN ELECTRONIC FINANCIAL MARKETS |
| Authors: | Weber, Bruce W. |
| Issue Date: | 10-Jun-1993 |
| Publisher: | Stern School of Business, New York University |
| Series/Report no.: | IS-93-15 |
| Abstract: | Electronic markets use information technology to disseminate information
on prices, quantities, and buyer and supplier identities. In spite of
the recognized benefits of electronic markets, increased visibility and
transparency may introduce imperfections, and create profitable
opportunities to bypass markets that generates the information. In the
U.S. securities markets, dissemination of market data has equipped
several firms to develop competing, off-exchange trading mechanisms that
rely on market price data, but whose transactions bypass the established
market. Concern is rising that the growing volume of trading occurring
away from the main market may reduce liquidity, and increase
transactions costs. A simulation model of securities trading in a
continuous auction market (similar to the market structure of the New
York Stock Exchange) is used to examine the market quality effects of
increasing levels of trading activity through an off-exchange dealer.
Market characteristics, such as transactions costs, are measured as
off-exchange trading increases from zero percent to 20 percent of the
total trading volume. The results indicate that competition from an
alternative trading venue reduces some trading costs borne by investors.
Contrary to regulatory goals, however, off-market trading expands the
role of profit-seeking dealers, and lowers the probability that some
investors' orders will execute. |
| URI: | http://hdl.handle.net/2451/14251 |
| Appears in Collections: | IOMS: Information Systems Working Papers
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