Market Making, the Tick Size, and Payment-for-Order Flow: Theory and Evidence
AbstractThe authors analyze the effects of a finite tick size and the practice of 'payment-for-order flow' on market competition. Even if the New York Stock Exchange (NYSE) reservation price is superior to its non-NYSE counterpart, brokers may, because of payment-for-order flow, prefer to execute orders off the NYSE floor. In accordance with the implications of the model, empirical analysis suggests that non-NYSE marketmakers trade a larger fraction of the smaller order sizes and offer fewer price improvement opportunities and that large companies appear to have enhanced price improvement opportunities on the NYSE. Copyright 1995 by University of Chicago Press.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 68 (1995)
Issue (Month): 4 (October)
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- Sabrina Buti & Barbara Rindi & Yuanji Wen & Ingrid M. Werner, 2013. "Tick Size Regulation and Sub-Penny Trading," Working Papers 492, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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Rodney L. White Center for Financial Research Working Papers
14-98, Wharton School Rodney L. White Center for Financial Research.
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- Li, Mingsheng & McCormick, Timothy & Zhao, Xin, 2005. "Order imbalance and liquidity supply: Evidence from the bubble burst of Nasdaq stocks," Journal of Empirical Finance, Elsevier, vol. 12(4), pages 533-555, September.
- Ahn, Hee-Joon & Cao, Charles Q. & Choe, Hyuk, 1998. "Decimalization and competition among stock markets: Evidence from the Toronto Stock Exchange cross-listed securities," Journal of Financial Markets, Elsevier, vol. 1(1), pages 51-87, April.
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