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Effects of Market Reform on the Trading Costs and Depths of Nasdaq Stocks

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Author Info
Michael J. Barclay (University of Rochester,)
William G. Christie (Vanderbilt University,)
Jeffrey H. Harris (University of Notre Dame,)
Eugene Kandel (Hebrew University)
Paul H. Schultz (University of Notre Dame,)

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Abstract

The relative merits of dealer versus auction markets have been a subject of significant and sometimes contentious debate. On January 20, 1997, the Securities and Exchange Commission began implementing reforms that would permit the public to compete directly with Nasdaq dealers by submitting binding limit orders. Additionally, superior quotes placed by Nasdaq dealers in private trading venues began to be displayed in the Nasdaq market. We measure the impact of these new rules on various measures of performance, including trading costs and depths. Our results indicate that quoted and effective spreads fell dramatically without adversely affecting market quality. Copyright The American Finance Association 1999.

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Publisher Info
Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 54 (1999)
Issue (Month): 1 (02)
Pages: 1-34
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Handle: RePEc:bla:jfinan:v:54:y:1999:i:1:p:1-34

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  2. Bruce Mizrach, 2006. "Does SIZE Matter? Liquidity Provision by the Nasdaq Anonymous Trading Facility," Departmental Working Papers 200602, Rutgers University, Department of Economics. [Downloadable!]
  3. FOUCAULT, Thierry & RÖELL, Ailsa & SANDAS, Patrik, 2000. "Market Making with Costly Monitoring : An Analysis of the SOES Controversy," Les Cahiers de Recherche 702, Groupe HEC. [Downloadable!]
  4. BIAIS, Bruno & BISIÈRE, Christophe & SPATT, Chester, 2003. "Imperfect Competition in Financial Markets: ISLAND versus NASDAQ," IDEI Working Papers 220, Institut d'Économie Industrielle (IDEI), Toulouse, revised Dec 2006. [Downloadable!]
  5. BENHAMI, Kheira & BISIÈRE, Christophe, 2005. "Does Order Flow Fragmentation Impact Market Quality? The Case of Nasdaq SuperMontage," IDEI Working Papers 470, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  7. Ian Domowitz & Jack Glen & Ananth Madhavan, 2000. "Liquidity, Volatility, and Equity Trading Costs Across Countries and Over Time," William Davidson Institute Working Papers Series 322, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  9. Javier Gil-Bazo & David Moreno & Mikel Tapia, 2005. "Price Dynamics, Informational Efficiency And Wealth Distribution In Continuous Double Auction Markets," Business Economics Working Papers wb057819, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
  10. Bruce Mizrach, 2002. "The Next Tick on Nasdaq: Does Level II Information Matter?," Departmental Working Papers 200202, Rutgers University, Department of Economics. [Downloadable!]
  11. Ricardo Lagos & Guillaume Rocheteau, 2007. "Search in asset markets: market structure, liquidity, and welfare," Working Paper 0701, Federal Reserve Bank of Cleveland. [Downloadable!]
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  12. Foucault, Thierry & Röell, Ailsa A & Sandås, Patrik, 1999. "Imperfect Market Monitoring and SOES Trading," CEPR Discussion Papers 2265, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. Bruno Biais & Christophe Bisiere & Chester Spatt, 2002. "Imperfect Competition in Financial Markets: ISLAND vs. NASDAQ," GSIA Working Papers 2003-E41, Carnegie Mellon University, Tepper School of Business. [Downloadable!]
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