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Handa/Tiwari Study on the Value of the Trading Floor Cited

Proponents of open outcry trading have received a rare boost with a study showing that this traditional method can be more efficient than electronic trading in certain trading environments. The findings, in a study by the UNIVERSITY OF IOWA and the City University of New York, comes as electronic trading appears set to drive open outcry towards extinction through lower costs and faster trade execution. The study, carried out on the equities trading floor at the American Stock Exchange in October 2001, found that floor brokers "added value through improved order handling". ASHISH TIWARI, assistant professor of finance at the University of Iowa and one of the study's authors, told the Financial Times: "By strategically timing the execution of trades to match the prevailing liquidity in the market the net result is that you are able to lower realized spreads. There are some lessons here. It's not that the cost of access is lower it's higher on the floor but it may be worth your while using the floor because the floor traders are essentially acting like smart order books, responding to the ebb and flow of liquidity."

This study was conducted by UI Associate Professor of Finance Puneet Handa, a Martha and Dennis Hesse Research Fellow; Robert Schwartz of Baruch College, City University of New York; and UI Assistant Professor of Finance Ashish Tiwari, the Matthew Bucksbaum Fellow in Business.

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