Inter-Market Competition for NYSE-listed Securities
The Review of Quantitative Finance and Accounting
We find that the NYSE participates more in NBBO formation after decimalization, while NASDAQ and the regional exchanges participate less. Not only is the NYSE at one or both sides of the NBBO more often, but the NYSE is alone at both sides of the NBBO 75% of the time after decimals. Although non-NYSE venues are more passive when it comes to posting quotes, their NBBO quotes improve, rather than match, the NBBO more often after decimalization. The NYSE has a larger portion of market share of both trades and volume after decimalization, executing 90% of its trades when either at both sides of the NBBO or on the trade side only. The NASDAQ and the regionals execute more than 70% of their trades when at neither side of the NBBO. Nevertheless, in a multivariate setting, we find that the NASDAQ and regional exchanges are quote-competitive, as they increase the probability of executing a trade by participating in the NBBO. As in the previous studies, we find that execution costs are higher on NASDAQ than the NYSE, and that the regional exchanges are even higher.
Finance and Financial Management | Portfolio and Security Analysis
Goldstein, Michael A., Andriy V. Shkilko, Bonnie F. Van Ness, Robert A. Van Ness. 2009. “Inter-Market Competition for NYSE-listed Securities.” The Review of Quantitative Finance and Accounting 52: 221-244
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