Off-Exchange Intermediation - Price Aggressiveness of Systematic Internalisers

We study the pricing behavior of Systematic Internalisers (SIs), bilateral trading intermediaries that enable investment firms for explicit transaction cost savings and further price improvement opportunities as trading is executed outside traditional securities exchanges. Under the current European regulatory obligations, SIs are exposed to similar risk structures like exchange market makers, questioning an SI's willingness to actually provide beneficial executions and therefore relinquish appropriate risk compensation. Based on SI trade execution in 2009, we empirically analyze SI price aggressiveness and find beneficial executions in about 60 percent of our sample executions. However, we find indications that SIs actively manage their risk positions via their provision of price improvements and deteriorations. Inventory risk consideration strongly confine the provision of price improvements, while market risk considerations do not affect SI price aggressiveness negatively.