Institutional commissions are determined in part by the characteristics of the stock being traded. An examination of approximately 28,000 institutional trades over five post-Mayday quarters indicates that security price and liquidity are important determinants of commissions. Commissions are related to price and to liquidity; higher priced stocks, being more liquid, are generally less costly to trade than lower priced stocks. Possible inventory risks, as measured by the standard deviation of returns, are positively related to commissions, but the explanatory power of this variable is not as great as that of liquidity or price and its practical importance is minimal.

Of course, it is returns after commissions that are important, not the commissions themselves. Thus the reduction in commission costs offered by some portfolio strategies must be balanced against expected returns. The historical returns from a strategy of investing in low priced stock, for example, clearly dominated the adverse effect of the higher commissions involved.