In search of liquidity: block trades in the upstairs and downstairs markets

We analyze the ability of various market mechanisms to provideliquidity for large equity trades. Using data on 21,077 blocktransactions in Dow Jones stocks, we find that the 'downstairs'NYSE floor market is a significant source of liquidity. Althoughnegotiation in the informal 'upstairs' market provides betterexecution than the downstairs market for large trades, thesedifferences are economically small. We find, however, that upstairsmarkets are used by traders who can credibly signal that theirtrades are liquidity motivated. Thus, upstairs markets allowtrades that may not otherwise occur.