This paper analyses the cost of trading French shares on two exchanges, the Paris Bourse and London's SEAQ International. Using a large data set consisting of all quotes, limit orders and transactions for a two month period, it is shown that for small transactions the Paris Bourse has lower implicit transaction costs, measured by the realised or quoted bid-ask spread. The market in London, however, is much deeper and provides immediacy for much larger trades. Moreover, we find that the cost of trading is decreasing in trade size, rather than increasing over the range of trade size that we examine. This suggests that order processing costs are an important determinant of bid-ask spreads, since competing market microstructure theories (adverse selection, inventory control) predict bid-ask spreads increasing in trade size.
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