regulation nms and market quality - university at ….ppt

Regulation NMS and Market QualityKee H. Chungaand ChairatChuwonganantbaState University of New York (SUNY) at Buffalo, Buffalo, NY 14260, USAb Kansas State University, Manhattan, KS 66506, USA?Regulation NMS (Reg NMS) isarguably one of the prehensive and controversial regulatory changes in the . financial markets in 30 years.?We examine the impact of Regulation NMS (Reg NMS) on various dimensions of market quality using data before and after its of the study?We analyze the effects of the two new rules, the Order Protection Rule and the Access Rule, on ?execution cost?execution speed and execution probability?price impact?price improvement?the efficiency of price discovery In Particular,?The Order Protection Rule (OPR) requires “trading centers to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the execution of trades at prices inferior to protected quotations displayed by other trading centers, subject to an applicable exception.”?OPR differentiates markets into fast and slow.?The primary purpose of OPR is to provide protection against trade-throughs for all NMS Protection Rule (OPR)?OPR is prompted in large part by the SEC’s concern that the increased fragmentation of trading and quoting across venues may reduce liquidity.?SEC fears that brokers executing trades in one market may trade-through better quotes in other markets, reducing the incentive to post the best possible quotes.?If they get traded through frequently, liquidity providers may be less willing to supply liquidity, reducing overall market Protection Rule (OPR)?The Access Rule (AR) requires fair and non-discriminatory access to quotations displayed by Self anization (SRO) trading centers through private linkages. ?plements OPR because it helps protect the best displayed quotes against trade-through by allowing broker-dealers and trading centers to access those quotes easily and cheaply. ?AR also i