@booklet {michaelgoldstein-bcaitp2004,
	title = {Brokerage Commissions and Institutional Trading Patterns},
	howpublished = {Discussion Papers},
	year = {2004},
	month = {3},
	abstract = {Why do brokers charge per-share commissions to institutional traders? What determines the commission charge? We examine commissions and order flow for a sample of institutional orders and find that most per-share commissions are concentrated at only a few price points, primarily 5 and 6 cents per share. Further, we find that the prior-period commission, rather than execution costs, is the strongest determinant of next period{\textquoteright}s commission. These results are inconsistent with negotiation of commissions on an order-by-order basis or with the impression of a continuous transaction cost that is deduced from the distribution of percentage commissions, suggesting that commissions are not a marginal cost of execution. We also find that institutional clients concentrate their order flow with a small set of brokers, and that small institutions concentrate more than large institutions. Collectively, our results suggest that brokers and their institutional clients enter into long-term agreements where the per-share commission is constant, and the order flow routed to a particular broker is used to maintain the required payment for an institution{\textquoteright}s desired level of service. Commissions, therefore, constitute a convenient way of charging a predetermined fixed fee for broker services.},
	url = {/files/dp356.pdf},
	author = {Michael Goldstein, Paul Irvine, Eugene Kandel and Zvi Wiener}
}
