Inter-market competition for NYSE-listed securities under decimals

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

doi:10.1007/s11156-009-0139-6

Cited by 5 publications

(13 citation statements)

References 24 publications

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“…On the other hand, as spreads narrow and rents become smaller, decimalization may reduce incentives to compete for orders. Such post‐decimalization decline in quote competitiveness was suggested by Blume and Goldstein (1997) and is reported by Bessembinder (2003b) and Goldstein, Shkilko, Van Ness, and Van Ness (2010). We confirm that non‐NYSE quote competitiveness declines post‐decimals; however, the decline is far smaller than previously believed.…”

Section: Introductionsupporting

confidence: 86%

“…In particular, if 100‐share quotes are included in the analysis, the NYSE is alone at the NBBO six times more post‐decimals than it is pre‐decimals, suggesting a substantial increase in competitiveness of the NYSE quotes. Bessembinder (2003b) and Goldstein, Shkilko, Van Ness, and Van Ness (2010) include 100‐share quotes in the analysis and come to similar conclusions. If we exclude 100‐share quotes, the increase in competitiveness is much smaller—the NYSE is only 0.16 times more competitive post‐decimals.…”

Section: Introductionmentioning

confidence: 65%

“…In other words, when spreads are narrow and potential profits are small, market makers will not extend considerable effort to attract orders. Bessembinder (2003b) and Goldstein, Shkilko, Van Ness, and Van Ness (2010) test this hypothesis in the post‐decimal environment and find that competition from the off‐NYSE venues notably decreases.…”

Section: Decimalization Competitiveness and Market Qualitymentioning

confidence: 96%

“…Research generally agrees that the effect of decimalization is positive, as trading costs and preferencing decline, and the percentage of trades receiving price improvement increases (Bessembinder, 2003b; Chung, Charoenwong, and Ding, 2004; Smith, Turnbull, and White, 2006; Huang, Rhee, and Tang, 2010). There are, however, several studies suggesting that decimalization also has negative consequences, as quoted depths, displayed liquidity, and non‐NYSE quote competitiveness substantially decline (Bacidore, Battalio, and Jennings, 2003; Bessembinder, 2003b; Goldstein, Shkilko, Van Ness, and Van Ness, 2010).…”

Section: Introductionmentioning

confidence: 99%

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Quote Competitiveness, 100-share Quotes, and Decimalization

Tang¹,

Shkilko²,

Stone

2011

Financial Review

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The finance literature documents a significant post-decimalization decline in intermarket quote competitiveness. We show that this result is due primarily to the decline in 100-share NBBO-matching quotes posted by NASDAQ. After decimalization, such quotes decline by more than 90%. At that time, the intermarket trading system (ITS) regards 100-share quotes as meaningless; these quotes are exempt from the trade-through rule and are generally ignored by ITS participants. We therefore argue that the major decline in quote competitiveness observedWe would like to thank Jeff Bacidore, Frank Hatheway, Tim McCormick, Robert Van Ness (the editor), and two anonymous reviewers for their comments and valuable suggestions. We are responsible for all remaining errors. C 2011, The Eastern Finance Association 89 90 N. Tang et al./The Financial Review 46 (2011) 89-101by previous research is largely nominal, and that decimalization had a much lesser impact on quote competitiveness than previously believed.

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Section: Introductionsupporting

confidence: 86%

Section: Introductionmentioning

confidence: 65%

Section: Decimalization Competitiveness and Market Qualitymentioning

confidence: 96%

Section: Introductionmentioning

confidence: 99%

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Quote Competitiveness, 100-share Quotes, and Decimalization

Tang¹,

Shkilko²,

Stone

2011

Financial Review

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“…Bacidore et al (2003) argue that a smaller tick leads to less displayed liquidity on the order book, but that that has no effect on execution quality. Goldstein et al (2010) show that Acronyms are defined in Table 1 One size fits all? High frequency trading, tick size… 373 Simulation Simulation Simulation A smaller tick size facilitates the specialist's ability to step ahead of the limit order book, resulting in a reduction in the cumulative depth of the limit order book at prices above the minimum tick…”

Section: Tick Size Changes and Volatilitymentioning

confidence: 99%

One size fits all? High frequency trading, tick size changes and the implications for exchanges: market quality and market structure considerations

Verousis

Perotti

Sermpinis

2017

Rev Quant Finan Acc

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This paper offers a systematic review of the empirical literature on the implications of tick size changes for exchanges. Our focus is twofold: first, we are concerned with the market quality implications of a change in the minimum tick size. Second, we are interested in the implications of changes in the minimum tick size on market structure. We show that there is a large body of empirical literature that documents a decrease in transaction costs following a decrease in the minimum tick size. However, even though market liquidity increases, the incentive to provide market making activities decreases. We document a strong link between the minimum tick size regulations and the recent increase in high frequency trading activity. A smaller tick enhances the price discovery process. However, the question of how multiple tick size regimes affect market liquidity in a fragmented market remains to be answered. Finally, we identify topics for future research; we discuss the empirical literature on the minimum trade unit and the recent calls for a minimum resting time for quotes.

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