Determinants of the Components of the Bid-Ask Spreads on the London Stock Exchange: The Case of Changes in Trading Regimes

We look into the components of the bid-ask spread and their determinants for FTSE100 and FTSE250 stocks under different trading regimes. We find that the asymmetric component of the spread for FTSE100 stocks is higher under a quote driven market. Also stock volatility appears to affect the asymmetric component to a greater extent when the market is quote driven. We believe that the main justification for those findings is affirmative quotation. Results obtained for FTSE250 stocks show that the asymmetric information component of the spread does not reduce when the market changes from quote driven to hybrid because market makers are still obliged to provide liquidity, indicating that different trading systems can have different effects on spread and its components