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Abstract

We examine the determinants of US equity trader choice of electronic versus intermediated execution. While traders exhibit a strong overall preference for automation, when the market is less liquid at order submission time, traders seek market maker automated and human order-matching services more often. Traders' overall tendency to choose intermediaries is highly correlated with their demand for liquidity. Market maker participation rates are higher for more active and larger size traders. Traders who choose intermediaries more often trade more stocks, execute orders quicker, price orders more aggressively, and disperse their trading over longer periods of time. Although US stock intermediaries continue to lose market share, our results highlight the important role these firms can play in an increasingly automated, electronically driven marketplace.