Competition in the market for NASDAQ securities

Goldstein, Michael A.; Shkilko, Andriy; Ness, Bonnie F. Van; Ness, Robert A. Van

doi:10.1016/j.finmar.2007.07.002

Cited by 70 publications

(29 citation statements)

References 24 publications

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“…Trades on ECNs seem to be more informative and contribute to price discovery (Huang (2002) and Barclay, Hendershott, and McCormick (2003)). Goldstein, Shkilko, Van Ness, and Van Ness (2008) show that ECNs are at the best bid/ask for a similar fraction of time compared to Nasdaq market makers. However, quote quality varies across ECNs and market maker quotes seem to be generally more stable, i.e.…”

Section: Related Workmentioning

confidence: 92%

“…As a consequence, the attractiveness of a trading venue to liquidity takers may be characterized by the platform's participation rate in the inside spread. We provide four measures of quote competitiveness (Goldstein, Shkilko, Van Ness, and Van Ness 2008): (1): presence at the EBBO (inside bid and/or ask) (2): presence at the EBB and EBO (3): alone at the EBBO (inside bid and/or ask) (4): alone at the EBB and EBO. Table 2 (Table 2, Panel C).…”

Section: Quote Competitionmentioning

confidence: 99%

“…Table 2 (Table 2, Panel C). A quote is considered to have time priority either if it is at the best bid or ask alone or if it is at the best bid or ask and additionally has been submitted earlier than quotes at the same price (Goldstein, Shkilko, Van Ness, and Van Ness 2008). We average time priority of the bid and ask side of the order book per day and per stock.…”

Section: Quote Competitionmentioning

confidence: 99%

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Do we need a European 'National Market System'? Competition, Arbitrage, and Suboptimal Executions

Storkenmaier

Wagener²

2011

SSRN Journal

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The introduction of the European Markets in Financial Instruments Directive (MiFID) ended the quasi-monopoly of national exchanges in equity trading across Europe and many new trading platforms emerged. European trading venues are neither formally linked by technology nor does regulation enforce price-priority across platforms. This raises the question of market integration of fragmented markets. We find that quotes for UK blue-chip stocks are closely linked across trading venues and that a high fraction of trades is executed at best available prices. Our results suggest that competition forces competing but disconnected platforms to quote prices as if they were formally linked.JEL Classification: G10, G14, G18.

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Section: Related Workmentioning

confidence: 92%

Section: Quote Competitionmentioning

confidence: 99%

Section: Quote Competitionmentioning

confidence: 99%

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Do we need a European 'National Market System'? Competition, Arbitrage, and Suboptimal Executions

Storkenmaier

Wagener²

2011

SSRN Journal

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“…when the EBBO spread is non-positive (see Shkilko et al [2008]). Nevertheless, including these observations does not alter the results qualitatively.…”

Section: Effective Spread Decompositionmentioning

confidence: 99%

Adverse selection, market access, and inter-market competition

Hoffmann

2016

Journal of Banking & Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe study the role of informed trading in a fragmented financial market under the absence of inter-market price priority. Due to frictions in traders' market access, liquidity providers on alternative trading platforms may be exposed to an increased adverse selection risk. As a consequence, the main market dominates (offers better quotes) frequently albeit charging higher transaction fees. The empirical analysis of a dataset of trading in French and German stocks suggests that trades on Chi-X, a lowcost trading platform, carry significantly more private information than those executed in the Primary Markets. Consistent with our theory, we find a negative relationship between the competitiveness of Chi-X's quotes and this excess adverse selection risk faced by liquidity providers in the cross-section. Our results have some implications for the design of best-execution policies.Keywords: MiFID, Inter-market competition, Adverse selection, Transaction fees JEL Classification: G10, G14, G241 Non-technical summaryThis paper studies the role of adverse selection in competition among stock exchanges when price priority across markets is not enforced, i.e. the regulator does not explicitly prohibit trades to execute at prices that are inferior to the best available price across all relevant trading platforms. The analysis is motivated by the absence of a so-called "trade-through rule" under MiFID in the European Union, which stands in contrast to the Regulation National Market System (RegNMS) in the United States that protects the currently best quote by forcing exchanges to route incoming orders to other markets in case they offer better terms of trade.First, we present a two-market version of the Glosten and Milgrom (1985) sequential trade model, where one market (the "Primary Market") can be accessed by all agents while trading in the other market (the "Entrant Market") requires agents to have access to a multi-market trading technology. This is motivated by the fact that searching for the best price among multiple venues is costly and computer technology helps to facilitate this process. Additionally we assume that the Primary Market charges higher transaction fees, which is motivated by the lower transaction fees observed on newly created trading platforms across Europe post-MiFID. We show that under the absence of a trade-through prohibition, this market access friction gives rise to differences in the adverse...

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“…Consistent with the low value of α NASD in the data moments, both models show very low estimates of θ NASD indicating that shocks to NASD quotes do not contribute much to the innovation in the efficient price. Since contemporaneous 12 See Goldstein et al (2008), who study the importance of different trading venues for price discovery of Nasdaq-listed stocks. Their study looks at a variety of measures for 100 different stocks in the second quarter of 2003.…”

mentioning

confidence: 99%