Do Brokers Act in the Best Interests of Their Clients? New Evidence from Electronic Trading Systems

11 Pages Posted: 4 Mar 2016

See all articles by Annilee M. Game

Annilee M. Game

University of East Anglia (UEA) - Norwich Business School

Andros Gregoriou

University of Brighton

Date Written: April 2016

Abstract

Prior research suggests brokers do not always act in the best interests of clients, although morally obligated to do so. We empirically investigated this issue focusing on trades executed at best execution price, before and after the introduction of electronic limit‐order trading, on the London Stock Exchange. As a result of limit‐order trading, the proportion of trades executed at the best execution price for the customer significantly increased. We attribute this to a sustained increase in the liquidity of stocks as a result of limit‐order trading, regardless of market capitalisation. We discuss the ethical implications of our findings and conclude that market structures that enhance market competitiveness may help reconcile broker and client interests.

Suggested Citation

Game, Annilee M. and Gregoriou, Andros, Do Brokers Act in the Best Interests of Their Clients? New Evidence from Electronic Trading Systems (April 2016). Business Ethics: A European Review, Vol. 25, Issue 2, pp. 187-197, 2016, Available at SSRN: https://ssrn.com/abstract=2741938 or http://dx.doi.org/10.1111/beer.12066

Annilee M. Game (Contact Author)

University of East Anglia (UEA) - Norwich Business School

Norwich
NR4 7TJ
United Kingdom

Andros Gregoriou

University of Brighton ( email )

Brighton
Brighton, BN2 4AT
United Kingdom

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