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On the Competition between ECNs Stock Market and Market Makers

Explore the dynamic competition between ECNs, stock markets, and market makers, delving into the emergence of new financial intermediaries like ECNs and Internet brokerages. Learn about the literature reviews on market micro-structure and the transition of ECNs from financial information networks to electronic stock markets. Discover the importance of connectivity, proprietary trading systems, anonymity, liquidity, and more in shaping the market landscape. Delve into the future of marketplaces with technological diffusion, global convergence, regulatory challenges, and the impending convergence in the financial network sector.

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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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