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The Market Quality of Dealer versus Hybrid Markets: The Case of Moderately Liquid Securities
Author(s) -
Lai HungNeng
Publication year - 2007
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2006.00665.x
Subject(s) - market liquidity , stock exchange , order (exchange) , flash trading , business , stock market , dark liquidity , quality (philosophy) , security market , limit (mathematics) , market maker , financial economics , high frequency trading , economics , commerce , finance , paleontology , mathematical analysis , philosophy , mathematics , horse , epistemology , biology
Over the last decade, electronic limit‐order trading systems have been sweeping securities exchanges around the world. This paper studies a transitional case, namely, the commencement of trading of a group of moderately liquid stocks on SETS of the London Stock Exchange. The evidence reveals that the liquidity of those stocks dropped substantially after the introduction of the limit order book and the removal of the market makers' obligations. This transition provides an example that a hybrid market with a limit order book and voluntary dealers may not perform as well as a dealership market with obligatory market makers.