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The Economic Value of a Trading Floor: Evidence from the American Stock Exchange

Puneet Handa, Robert A. Schwartz and Ashish Tiwari
The Journal of Business
Vol. 77, No. 2 (April 2004), pp. 331-355
DOI: 10.1086/381279
Stable URL:
Page Count: 25
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By comparing execution costs of trades handled by Amex floor brokers with trades entered through its automated post execution reporting (PER) system, this article provides evidence that floor brokers have value. Because they can opportunistically seize liquidity, using a floor broker is equivalent to placing a “smart” limit order. Overall, floor trades have a lower realized half‐spread than PER trades (−3.06 bps vs. 4.43 bps). This finding holds for other measures of execution costs and is consistent across all order‐size categories. The analysis of the value of intermediation in a securities market has implications for automated trading systems.

Notes and References

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