The Impact of Broker Market Structure on Stock Liquidity

We investigate the extent to which the liquidity of listed stocks is affected by the market structure under which stockbrokers provide a combination of stock trading, research, and investment banking services. Six market structures of differing degrees of competitiveness are identified for brokers operating in the Australian equity market. We find that less competitive structures tend to associate with lower stock liquidity; and that shifts in broker market structure align with changes in liquidity over time. Further, broker market structures appear to interact with the provision of services by brokers, such that additional services improve liquidity to a greater extent under less competitive structures. Our research shows that the market structure for brokerage services acts as an additional determinant of the market liquidity of stocks