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On the Competition between ECNs Stock Market and Market Makers

On the Competition between ECNs Stock Market and Market Makers. By E. Ben-Hamou (LSE) and T. Serval (Toulouse /Harvard). Importance of the competition.

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On the Competition between ECNs Stock Market and Market Makers

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  1. On the Competition between ECNs Stock Market and Market Makers By E. Ben-Hamou (LSE) and T. Serval (Toulouse /Harvard)

  2. Importance of the competition • Exploding sector via Electronic markets (NASDAQ, EUREX, LIFFE …European development: Jiway with Morgan Stanley and OM group, Mitsui and Goldman... • Emergence of new financial Intermediaries : • Electronic Communication Networks (Instinet, Island, …) • Internet brokerage (e-trade, C. Schwab, Ameritrade …) • on-line bond trading, on-line IPO

  3. The big picture

  4. Literature reviews • Market micro-structure: • Nasdaq vs NYSE: Haris (1990), Huang and Stoll (1996) • Collusion: Christie&Schultz (1994), Demsetz (), Biais, Foucault, Salanie (1998), Dutta& Madhavan (1997) • Electronic order book: Glosten (1993) • ECNS Henderscott& Mandelson (2000) • Network Economics: • Economides (1992, 1993, 1995), • Farewell&Saloner (1992)

  5. The ECNs from Financial information networks to electronic Stock markets • Connectivity of the financial networks • positive externalities • importance of the installed basis • critical mass • proprietary trading systems versus open systems • Interconnection between networks • Anonymity and transaction costs • Anonymity and liquidity • matching service • price of immediacy on real time market.

  6. The future of the Market place • The diffusion of technology • Partially compatible networks • The effect of internet • New competitors: the existing information networks • Convergence and Globalisation of financial networks • Competition between networks in the US may lead to world wide networks • Trade-off between fair prices and fixed costs: a regulation problem to come • The sign of convergence

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