Competition on the Nasdaq and the Impact of Recent Market….pptx

Competition on the Nasdaq and the Impact of Recent Market ReformsJames P. Weston2New Order-Handling Rules?Permits public limit orders pete directly with dealer quotes?Quotations on proprietary trading systems made public–ECNs, like , are used mostly by dealers to trade with each other anonymously. Quotes on works were allegedly often narrower than public quotes. The new SEC rules force greater public access to these proprietary ?Dealers’ ponent of the spread?Difference between Nasdaq spread and NYSE spread?petition leads to exit of market maker 4Component of spread and the effect of new regulation?Order-processing costs–No effect?Inventory-holding costs–More difficult to adjust quotes for inventory purposes?Adverse-information costs–No effect. Since adverse-information costs depend on proportion of informed trading and frequency of information events?Market maker rents–If new regulation leads to petition, then rents will decrease5Sample data?Nasdaq began implementing new rules in a number of phases–First phase took effect on Jan. 20 and affected 50 stocks–Second phase took effect on February 10 and affected 50 stocks?Require 90 days before and 90 days after the new regulation, and require that no stock split during the period?88 stocks left in the sample678910