The trading process

Niamh Moloney

doi:10.1017/CBO9780511674808.007

6 - The trading process

Published online by Cambridge University Press: 26 February 2010

Niamh Moloney

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Niamh Moloney: Affiliation:
London School of Economics and Political Science

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Summary

Promoting access to trading

Better diversification and lower trading costs

Product regulation, the advice/sales process and product/firm disclosures are the major preoccupations of EC retail market policy, reflecting the shape of EC retail market investment. But the retail trading sector, which is strongly associated with direct equity and debt investments although retail investors also trade in listed collective investments, while small, remains significant for retail policy. Advances in technology mean that retail investors now have greater freedom to trade directly through low-cost execution channels. Online brokerage services, particularly those supplied by bank-based ‘financial supermarkets’, are growing. Before the financial crisis, share clubs had become increasingly popular mechanisms for accessing the markets in the UK, while, for a smaller subset of the retail market, online, execution-only dealing in contracts for differences was increasing. Retail market interests have also been highlighted in the high-profile debate on US/EC mutual recognition of trading markets, while trading markets are increasingly engaging with the retail market through innovations such as Direct Market Access mechanisms.

The trading process and the related trading costs matter to retail market policy. High trading costs can obstruct household market participation. High trading costs and difficulties in accessing trading services can also prejudice diversification and thus investors' ability to manage general market risk. One EC study has pointed to the sharp cost differentials in domestic and cross-border trades which favour domestic trading and to the generally high costs of retail market trades, partly linked to fragmentation in clearing and settlement systems.

Type: Chapter
Information: How to Protect Investors
Lessons from the EC and the UK
, pp. 345 - 373

DOI: https://doi.org/10.1017/CBO9780511674808.007 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2010

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6 - The trading process

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