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"This study re-affirms what we at the Amex have known for years," said Salvatore F. Sodano, Chairman and CEC of the American Stock Exchange, "that the auction market with its trading floor and specialist firms offers individual investors valued-added services not found on electronic exchanges."
Using a floor broker is equivalent to placing a "smart" limit order, according to the conference organizer, Robert Schwartz, who is the Marvin M. Speiser professor of finance and distinguished professor at the Zicklin School of Business at Baruch College, CUNY and one of three researchers who wrote the paper.
Schwartz conducted the study along with Puneet Handa, Martha and Dennis Hesse Faculty Research Fellow and Associate Professor in Finance at the Henry B. Tippie College of Business at the University of Iowa in Iowa City and Ashish Tiwari, Matthew Bucksbaum Faculty Fellow in Business and Assistant Professor in Finance at the University of Iowa.
According to the study, the key service provided by floor brokers is the timing, sizing, and pricing of the tranches of an order. They found that floor brokers such as those on the American Stock Exchange (Amex), can opportunistically seize liquidity without showing their hands too quickly.
"The analysis of non-block and quote data for 973 stocks during October 2001 found that cost savings are substantial when an order is entered by a floor broker," said Handa. "The report's findings also suggest that floor brokers exhibit strategic behavior and sheds light on the value of intermediation in the equity market," he added.
