Liquidity in auction and specialist market structures

Evidence from the Italian bourse

Alex Frino, Dionigi Gerace, Andrew Lepone*

*Corresponding author for this work

Research output: Contribution to journalArticle

12 Citations (Scopus)


Several studies find that bid-ask spreads for stocks listed on the NYSE are lower than for stocks listed on NASDAQ. While this suggests that specialist market structures provide greater liquidity than competing dealer markets, the nature of trading on the NYSE, which comprises a specialist competing with limit order flow, obfuscates the comparison. In 2001, a structural change was implemented on the Italian Bourse. Many stocks that traded in an auction market switched to a specialist market, where the specialist controls order flow. Results confirm that liquidity is significantly improved when stocks commence trading in the specialist market. Analysis of the components of the bid-ask spread reveal that the adverse selection component of the spread is significantly reduced. This evidence suggests that specialist market structures provide greater liquidity to market participants.

Original languageEnglish
Pages (from-to)2581-2588
Number of pages8
JournalJournal of Banking and Finance
Issue number12
Publication statusPublished - Dec 2008
Externally publishedYes

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