Lawrence Glosten

Is the Electronic Open-Limit Order Book Inevitable?

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Abstract:
Under fairly general conditions, the article derives the equilibrium price schedule determined by the bids and offers in an open limit order book. The analysis shows: (1) the order book has a small-trade positive bid-ask spread, and limit orders profit from small trades; (2) the electronic exchange provides as much liquidity as possible in extreme situations; (3) the limit order book does not invite competition from third market dealers, while other trading institutions do; (4) If an entering exchange earns nonnegative trading profits, the consolidated price schedule matches the limit order book price schedule.

Source: Journal of Finance
Exact Citation:
Glosten, Lawrence. "Is the Electronic Open-Limit Order Book Inevitable?" Journal of Finance 49, no. 4 (September 1994): 1127-61.
Volume: 49
Number: 4
Pages: 1127-61
Date: 9 1994