The choice of direct dealing or electronic brokerage in foreign exchange trading

The empirical analysis utilizes data on orders submitted to the Reuters EB system. We focus on the duration of time between order submission and finding a match for trade execution. An autoregressive conditional duration (ACD) model is specified using the Burr distribution. Given the price competitiveness of an order, duration is increasing in order size. Because of this longer duration for large orders on the EB, large traders will prefer the direct dealing market to the brokerage. We also find that the greater the depth of the market, the shorter the duration of orders of all sizes. This result is consistent with traders clustering in time to submit orders so as to increase the probability of finding a match.