Do brokers act in the best interests of their clients? New evidence from electronic trading systems | Zendy

Game Annilee M. | Zendy; Gregoriou Andros | Zendy

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Do brokers act in the best interests of their clients? New evidence from electronic trading systems

Author(s) -

Game Annilee M.,

Gregoriou Andros

Publication year - 2016

Publication title -

business ethics: a european review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 1.343

H-Index - 35

eISSN - 1467-8608

pISSN - 0962-8770

DOI - 10.1111/beer.12066

Subject(s) - order (exchange) , market liquidity , business , limit (mathematics) , electronic trading , market maker , dark liquidity , price discovery , electronic markets , high frequency trading , commerce , finance , computer science , the internet , mathematical analysis , paleontology , mathematics , horse , stock market , biology , futures contract , world wide web

Prior research suggests brokers do not always act in the best interests of clients, although morally obligated to do so. We empirically investigated this issue focusing on trades executed at best execution price, before and after the introduction of electronic limit‐order trading, on the L ondon S tock E xchange. As a result of limit‐order trading, the proportion of trades executed at the best execution price for the customer significantly increased. We attribute this to a sustained increase in the liquidity of stocks as a result of limit‐order trading, regardless of market capitalisation. We discuss the ethical implications of our findings and conclude that market structures that enhance market competitiveness may help reconcile broker and client interests.

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