Trading through dealers on the London Stock Exchange could be obsolete in less than three years, according to new research funded by the Economic and Social Research Council. A study led by Dr Nir Vulkan of the Saïd Business School and Worcester College, University of Oxford, investigated where traders would trade if they had the choice of either a dealers’ market or a computerised system. ‘Our study suggests that in a just a few years’ time the traditional dealing market on the London Stock Exchange will become obsolete unless steps are taken to make it more attractive,’ stated Dr Vulkan. Exploration of data, collected from the LSE confirmed the research team’s earlier theoretical hypothesis that ‘weak’ traders are attracted to the anonymous electronic marketplace. Once ‘weak’ traders have moved to the electronic market, then the remaining ‘weakest’ traders will be further disadvantaged from trading in the dealer’s market and will switch to trading in the electronic marketplace. The theory concludes that in the absence of additional incentives this process will continue until, finally, all traders have moved to the electronic market.
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