The growth of alternative trading systems that compete with established stock markets will have profound effects on many securities exchanges and their member firms. New screen-based markets match investors' orders directly without the involvement of a broker or a dealer, saving intermediation costs such as the bid-ask spread and broker commission costs. Competing market makers operating on the London Stock Exchange's SEAQ market provide an intermediated "quote-driven" trading mechanism, but the approaching roll-out of several alternatives will provide investors with new opportunities to trade without market makers. A model of order arrival, information change, and trading in a competing dealer market based on SEAQ is used to examine the consequences of "disintermediated" trading systems. The results indicate low-cost trading systems reduce dealing margins and the role of intermediaries. While alternative trading system lessen the transactions costs borne by some traders, those requiring immediate execution and dealer intermediation may pay more in future marketplaces.
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