Ryan Garvey is with Duquesne University, Pittsburgh, PA 15282, firstname.lastname@example.org. Fei Wu is with Jiangxi University of Finance and Economics, Nanchang, China and Massey University, Palmerston North, New Zealand, email@example.com. Fei Wu was supported by the National Natural Science Foundation of China (Grant No. 71072083).
What Influences Trader Choice of Electronic versus Intermediated Execution?†
Article first published online: 23 SEP 2011
© 2011 The Authors. International Review of Finance © International Review of Finance Ltd. 2011
International Review of Finance
Volume 11, Issue 4, pages 445–476, December 2011
How to Cite
Garvey, R. and Wu, F. (2011), What Influences Trader Choice of Electronic versus Intermediated Execution?. International Review of Finance, 11: 445–476. doi: 10.1111/j.1468-2443.2011.01137.x
- Issue published online: 2 DEC 2011
- Article first published online: 23 SEP 2011
- National Natural Science Foundation of China. Grant Number: 71072083
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.