Costis Maglaras

The effect of flow internalization in price volatility and trade executions costs

Abstract:

Flow internalization is a prevalent feature of our markets. Broker dealers that internalize flow, defend the practice on the basis that it offers potential price improvement and lowers take fees. This paper studies a mathematical model of limit order book dynamics with and without flow internalization, and derives insights on the effect of the latter on price dynamics and long-run execution costs that are of interest in optimal trade execution and in policy considerations.

Source: Working paper
Exact Citation:
Maglaras, Costis. "The effect of flow internalization in price volatility and trade executions costs." Working paper, Columbia Business School, February 15, 2011.
Date: 15 2 2011