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Market Maker Quotation Behavior and Pretrade Transparency

Author

Listed:
  • Yusif Simaan

    (Fordham University)

  • Daniel G. Weaver

    (Baruch College)

  • David K. Whitcomb

    (Automated Trading Desk, Inc. and Rutgers University)

Abstract

We examine the impact of differing levels of pretrade transparency on the quotation behavior of Nasdaq market makers. We find that market makers are more likely to quote on odd ticks, and to actively narrow the spread, when they can do so anonymously by posting limit orders on Electronic Communication Networks (ECNs). From a public policy perspective, our findings suggest that making the level of pretrade transparency on Nasdaq more opaque by allowing anonymous quotes could improve price competition and narrow spreads further. Copyright 2003 by the American Finance Association.

Suggested Citation

  • Yusif Simaan & Daniel G. Weaver & David K. Whitcomb, 2003. "Market Maker Quotation Behavior and Pretrade Transparency," Journal of Finance, American Finance Association, vol. 58(3), pages 1247-1268, June.
  • Handle: RePEc:bla:jfinan:v:58:y:2003:i:3:p:1247-1268
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