TY - JOUR
T1 - Principal and agency trades by stockbrokers are complementary
T2 - the welfare effects of deregulating agency trading and banning principal trades
AU - Aitken, Michael J.
AU - Swan, Peter L.
PY - 1993
Y1 - 1993
N2 - This paper models the demand for stockbrokers' services in Australia, consisting of two related services, agency trades and principal trades. The relationship between agency and principal trades is estimated. The results indicate that the two services are complements rather than substitutes. Using unique accounting information, a model of agency and principal trading activities is estimated to determine the welfare effects of (i) deregulating brokerage commissions and (ii) a ban on principal trading by brokers. The results show a sizeable welfare gain to investors (amounting to about 60% of the gross revenue of brokers) stemming from deregulation of the minimum charge for agency trades. The loss in profitability by brokers due to deregulation is also computed and shown to be negligible. The results also show that due to complementarity, a ban on principal trading, even with deregulation of agency trading, can impose an arbitrarily high cost on investors which could, in principle, offset the gains from agency deregulation.
AB - This paper models the demand for stockbrokers' services in Australia, consisting of two related services, agency trades and principal trades. The relationship between agency and principal trades is estimated. The results indicate that the two services are complements rather than substitutes. Using unique accounting information, a model of agency and principal trading activities is estimated to determine the welfare effects of (i) deregulating brokerage commissions and (ii) a ban on principal trading by brokers. The results show a sizeable welfare gain to investors (amounting to about 60% of the gross revenue of brokers) stemming from deregulation of the minimum charge for agency trades. The loss in profitability by brokers due to deregulation is also computed and shown to be negligible. The results also show that due to complementarity, a ban on principal trading, even with deregulation of agency trading, can impose an arbitrarily high cost on investors which could, in principle, offset the gains from agency deregulation.
UR - http://www.scopus.com/inward/record.url?scp=75949123667&partnerID=8YFLogxK
U2 - 10.1111/j.1467-629X.1993.tb00197.x
DO - 10.1111/j.1467-629X.1993.tb00197.x
M3 - Article
AN - SCOPUS:75949123667
VL - 33
SP - 19
EP - 42
JO - Accounting & Finance
JF - Accounting & Finance
SN - 0810-5391
IS - 2
ER -