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An examination of the NYSE’s retail liquidity program

Author

Listed:
  • Jain, Pankaj K.
  • Linna, Jared A.
  • McInish, Thomas H.

Abstract

The NYSE's Retail Liquidity Program (RLP) is a novel, restricted-access venue, in which orders cannot originate from a trading algorithm or any other computer methodology, designed to attract retail orders by offering price improvement. The mean price improvement in the RLP is about $0.0038 per share. RLP trades occur on 50.2 % of days, and on these days, the spread is one-cent 42 % of the time compared with a little less than 33 % of the time for other days. Greater tick-size constraint leads to more RLP trades, and the quoted spread is lower on days with RLP trading. Thus, the RLP sorting mechanism appears to reduce lit market liquidity suppliers' adverse selection concerns and enables them to provide better sub-penny prices to retail traders on lit markets.

Suggested Citation

  • Jain, Pankaj K. & Linna, Jared A. & McInish, Thomas H., 2021. "An examination of the NYSE’s retail liquidity program," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 367-373.
    • Handle: RePEc:eee:quaeco:v:80:y:2021:i:c:p:367-373
    DOI: 10.1016/j.qref.2021.03.009
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    References listed on IDEAS

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    1. James J. Angel & Lawrence E. Harris & Chester S. Spatt, 2011. "Equity Trading in the 21stCentury," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 1(01), pages 1-53.
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    4. Han, Bing & Kumar, Alok, 2013. "Speculative Retail Trading and Asset Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(2), pages 377-404, April.
    5. Comerton-Forde, Carole & Grégoire, Vincent & Zhong, Zhuo, 2019. "Inverted fee structures, tick size, and market quality," Journal of Financial Economics, Elsevier, vol. 134(1), pages 141-164.
    6. Qin Wang & Jun Zhang, 2015. "Individual investor trading and stock liquidity," Review of Quantitative Finance and Accounting, Springer, vol. 45(3), pages 485-508, October.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    NYSE retail liquidity program; Dark pools; Market fragmentation;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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