Paying for Market Liquidity: Competition and Incentives

Abstract

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 be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.

The Impact of Financial Transaction Taxes on Stock Markets: Short-Run Effects, Long-Run Effects, and Reallocation of Trading Activity

“…The exemption for market makers only applies to transactions where the aim is to satisfy clients' needs. 5 As documented by Bellia et al (2019) with data from NYSE Euronext, about 70 percent of new orders (including canceled orders) are submitted by market makers. Excluding canceled orders, market makers still account for about 42 percent of new orders.…”

“…Overall, these institutional details of the French FTT suggest a relatively weak longrun impact on trading activity. NYSE Euronext, 2012;Bellia et al, 2019). The program incentivizes supplemental liquidity providers (i.e., market makers) with a financial rebate when they post liquidity that executes against incoming orders (i.e., passive trades).…”

“…For our empirical analysis, especially the heterogeneity in SLP participation seems to be an essential characteristic. The program is one of the main instruments of NYSE Euronext to incentivize and regulate market-making activities (Bellia et al, 2019). Colliard and Hoffmann (2017, Online Appendix F), Bellia et al (2019), and Anagnostidis and Fontaine (2020) provide empirical evidence that the SLP program, as well as market-making regulations in general, have an impact on the liquidity of stocks.…”

“…The program is one of the main instruments of NYSE Euronext to incentivize and regulate market-making activities (Bellia et al, 2019). Colliard and Hoffmann (2017, Online Appendix F), Bellia et al (2019), and Anagnostidis and Fontaine (2020) provide empirical evidence that the SLP program, as well as market-making regulations in general, have an impact on the liquidity of stocks. Bellia et al (2019) analyze an adjustment of the program in 2013 and find that while small changes in the program incentives did not significantly impact liquidity, especially the competitive environment of designated market makers seems to be relevant for liquidity provision.…”

“…Colliard and Hoffmann (2017, Online Appendix F), Bellia et al (2019), and Anagnostidis and Fontaine (2020) provide empirical evidence that the SLP program, as well as market-making regulations in general, have an impact on the liquidity of stocks. Bellia et al (2019) analyze an adjustment of the program in 2013 and find that while small changes in the program incentives did not significantly impact liquidity, especially the competitive environment of designated market makers seems to be relevant for liquidity provision. Colliard and Hoffmann (2017) further provide evidence that SLP participation attenuated the negative impact of the French FTT on trading volumes of treated stocks.…”