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Transparency and market quality: Evidence from SuperMontage

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  • Chung, Kee H.
  • Chuwonganant, Chairat
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    Abstract

    In this study, we examine the effect of pre-trade transparency on market quality using data before and after the introduction of SuperMontage. Our results show that both bid-ask spreads and return volatility declined significantly after the implementation of SuperMontage. In addition, SuperMontage led to significant improvements in the SEC Rule 605 execution quality measures (e.g., faster executions and higher fill rates). Overall, our results indicate that SuperMontage improved market and execution quality on NASDAQ through greater pre-trade transparency and the integrated, more efficient quotation and trading system.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Intermediation.

    Volume (Year): 18 (2009)
    Issue (Month): 1 (January)
    Pages: 93-111

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    Handle: RePEc:eee:jfinin:v:18:y:2009:i:1:p:93-111

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    Web page: http://www.elsevier.com/locate/inca/622875

    Related research

    Keywords: Execution costs Market quality Liquidity Market transparency Market participants Quote competition;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Boehmer, Ekkehart, 2005. "Dimensions of execution quality: Recent evidence for US equity markets," Journal of Financial Economics, Elsevier, vol. 78(3), pages 553-582, December.
    2. Bessembinder, Hendrik, 2003. "Issues in assessing trade execution costs," Journal of Financial Markets, Elsevier, vol. 6(3), pages 233-257, May.
    3. Flood, M. & Huisman , R. & Koedijk, C.G. & Mahieu, R.J., 1999. "Quote disclosure and price discovery in multiple-dealer financial markets," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3106474, Tilburg University.
    4. Bessembinder, Hendrik & Maxwell, William & Venkataraman, Kumar, 2006. "Market transparency, liquidity externalities, and institutional trading costs in corporate bonds," Journal of Financial Economics, Elsevier, vol. 82(2), pages 251-288, November.
    5. Biais, Bruno, 1993. " Price Information and Equilibrium Liquidity in Fragmented and Centralized Markets," Journal of Finance, American Finance Association, vol. 48(1), pages 157-85, March.
    6. Lee, Charles M C & Ready, Mark J, 1991. " Inferring Trade Direction from Intraday Data," Journal of Finance, American Finance Association, vol. 46(2), pages 733-46, June.
    7. Naik, Narayan Y & Neuberger, Anthony & Viswanathan, S, 1999. "Trade Disclosure Regulations in Markets with Negotiated Trades," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 873-900.
    8. Flood, Mark D, et al, 1999. "Quote Disclosure and Price Discovery in Multiple-Dealer Financial Markets," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 37-59.
    9. Madhavan, Ananth, 1995. "Consolidation, Fragmentation, and the Disclosure of Trading Information," Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 579-603.
    10. Bloomfield, Robert & O'Hara, Maureen, 1999. "Market Transparency: Who Wins and Who Loses?," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 5-35.
    11. Lyons, Richard K., 1996. "Optimal Transparency in a Dealer Market with an Application to Foreign Exchange," Journal of Financial Intermediation, Elsevier, vol. 5(3), pages 225-254, July.
    12. Gemmill, Gordon, 1996. " Transparency and Liquidity: A Study of Block Trades on the London Stock Exchange under Different Publication Rules," Journal of Finance, American Finance Association, vol. 51(5), pages 1765-90, December.
    13. Zhao, Xin & Chung, Kee H., 2007. "Information Disclosure and Market Quality: The Effect of SEC Rule 605 on Trading Costs," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(03), pages 657-682, September.
    14. Shmuel Baruch, 2005. "Who Benefits from an Open Limit-Order Book?," The Journal of Business, University of Chicago Press, vol. 78(4), pages 1267-1306, July.
    15. Madhavan, Ananth, 1996. "Security Prices and Market Transparency," Journal of Financial Intermediation, Elsevier, vol. 5(3), pages 255-283, July.
    16. Pagano, Marco & Roell, Ailsa, 1996. " Transparency and Liquidity: A Comparison of Auction and Dealer Markets with Informed Trading," Journal of Finance, American Finance Association, vol. 51(2), pages 579-611, June.
    17. Madhavan, Ananth & Porter, David & Weaver, Daniel, 2005. "Should securities markets be transparent?," Journal of Financial Markets, Elsevier, vol. 8(3), pages 265-287, August.
    18. He, Chen & Odders-White, Elizabeth & Ready, Mark J., 2006. "The impact of preferencing on execution quality," Journal of Financial Markets, Elsevier, vol. 9(3), pages 246-273, August.
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    Cited by:
    1. Ding, Liang & Hiltrop, Jonas, 2010. "The electronic trading systems and bid-ask spreads in the foreign exchange market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(4), pages 323-345, October.
    2. Lin, Yaling, 2014. "An empirical study on pre-trade transparency and intraday stealth trading," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 26-40.

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