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

Author

Listed:
  • 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,)

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.

Suggested Citation

  • Michael J. Barclay & William G. Christie & Jeffrey H. Harris & Eugene Kandel & Paul H. Schultz, 1999. "Effects of Market Reform on the Trading Costs and Depths of Nasdaq Stocks," Journal of Finance, American Finance Association, vol. 54(1), pages 1-34, February.
  • Handle: RePEc:bla:jfinan:v:54:y:1999:i:1:p:1-34
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