We develop a model that analyzes competition between a non-intermediated market (such as an electronic communications network) and an intermediated market (such as via the market specialist’s structure within the NYSE) when both markets are allowed to trade the same securities. Specialists are viewed as providers of a “volatility dampening” service, a mechanism for reducing round-trip trading costs, as well as an “order execution risk management” service. The economic value of these three specialist services is determined by five key factors (the difference in spreads between the two financial market types, investors’ holding periods, the specialist’s quoted spread in relation to the asset’s price, the relative probability of executing an order in the intermediated market, and the short-term risk-free rate).