Institutional investors who conduct large stock trades, such as mutual funds, will force dealers to create equity trading communities to lower trading costs by 2003, according to a new report by Forrester Research of Cambridge, Mass. As a result, investors will see trading costs cut by between one-half and two-thirds, according to the report.

Currently, 40 percent of Nasdaq trades flow through electronic communication networks, according to Forrester. However, these ECNs are designed for smaller trades since order price and size are available to other investors, and investors will not risk displaying large orders. The New York Stock Exchange uses a system called Institutional Express to handle large orders by matching orders anonymously, however they must still go through a dealer, who could trade ahead and hurt those investors, according to Forrester.

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