We analyze a dynamic microstructure model in which a dealer market (DM) and a crossing network (CN) interact for three informational settings. A key result is that coexistence of trading systems generates systematic patterns in order flow, which depend on the degree of transparency. Further, we study overall welfare, measured by the gains from trade of all agents, and compare it with the maximum overall welfare. The discrepancy between both measures is attributable to two inefficiencies. Due to these inefficiencies, introducing a CN next to a DM, as well as increasing the transparency level, not necessarily produces greater overall welfare.

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Keywords alternative trading systems, crossing network, order flow, transparency, wellfare
JEL Information and Market Efficiency; Event Studies (jel G14), Financial Institutions and Services: General (jel G20)
Persistent URL dx.doi.org/10.1016/j.jfineco.2008.02.007, hdl.handle.net/1765/23436
Degryse, H, van Achter, M.A, & Wuyts, G. (2009). Dynamic order submission strategies with competition between a dealer market and a crossing network. Journal of Financial Economics, 91(3), 319–338. doi:10.1016/j.jfineco.2008.02.007