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1、DoesanElectronicStockExchangeNeedanUpstairsMarket?*HendrikBessembinderBlaineHuntsmanChairinFinanceDavidEcclesSchoolofBusinessUniversityofUtah1645EastCampusCenterDriveSaltLakeCity,UT84112e-mail:finhb@business.utah.eduandKumarVenkataramanEdwinL.CoxSchoolofBusinessSouthernMethodistUniversityPOBox
2、750333,Dallas,TX75275e-mail:kumar@mail.cox.smu.eduInitialDraft:April2000CurrentDraft:May2002*WethankSeungAhn,ChrisBarry,BillChristie,JeffreyColes,NaveenDaniel,HerbertKaufman,PeterLocke,GeorgeOldfield,ElizabethOdders-White,RexThompson,andseminarparticipantsatthe2000FMAAnnualMeetings,theFall2001
3、NBERmarketmicrostructuremeetings,ArizonaStateUniversity,CollegeofWilliamandMary,TexasChristianUniversity,TexasTechUniversity,andSouthernMethodistUniversityforvaluablecommentsanddiscussion.WearegratefultoPatriciaRanunkelofBankIndosuez(Paris)andMarianneDemarchioftheParisBourseforinformationonthe
4、Parisupstairsmarket.DoesanElectronicStockExchangeNeedanUpstairsMarket?AbstractWeexamineblocktradesontheParisBoursetotestseveraltheoreticalpredictionsregardingupstairstrading,andexploitcross-sectionalvariationin“crossingrules”ontheParisBoursetoprovideevidenceontheirrelevance.Parisprovidesanexce
5、llentsettingtotesttheimplicationsofupstairsintermediationmodels,becauseitselectroniclimitordermarketcloselyresemblesthedownstairsmarketsenvisionedbytheorists.WepresentdirectevidenceinsupportofGrossman’s(1992)predictionthatupstairsbrokerslowerexecutioncostsbytappingintopoolsofunexpressedliquidi
6、ty,asactualexecutioncostsupstairsarelessthanonethirdaslargeaswouldbeanticipatedifblocktradeswereexecutedagainstdisplayedliquidityinthedownstairsmarket.Consistentwithprioranalyses,theParisdataalsosupportstheSeppi(1990)hypothesisthatupstairsbrokerscertifytradesasuninformed.Wefindthatparticipants
7、instockswithlessrestrictivecrossingrulesagreetooutside-the-quoteexecutionsformoredifficulttradesandattimeswhendownstairsliquidityislacking.Theselikelyrepresenttradesthatcouldnothavebeenotherwisecompleted,suggestingthatmarketqualitycanbe
