In search of liquidity: The block broker's choice of where to trade cross-listed stocks

This paper investigates how block brokers choose the exchange on which to fill orders for cross-listed securities. We model the block broker's response function based on several variables used to measure differences in the displayed and non-displayed liquidity between markets. Because a block broker's reputation in each market affects the liquidity available to him, we consider the role of reputation in the decision process. We find that reputation capital is significant and that it differs between the New York Stock Exchange and the Toronto Stock Exchange. In addition to reputation capital, the choice of where to fill a block order for cross-listed shares is a function of market depth, price continuity and clientele effects.