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Specialist Profits and the Minimum Price IncrementJay F. CoughenourUniversity of Delaware - Department of Finance Lawrence HarrisUniversity of Southern California - Marshall School of Business - Finance and Business Economics Department April 30, 2004 Abstract: NYSE specialist participation rates and profits are affected by the rules that govern their trades. Lowering the minimum tick from $1/16 to $0.01 effectively relaxed the public order precedence rule, gave specialists more price points within the bid-ask spread on which to quote aggressively, and lowered spreads. Due to these offsetting forces, we find that average specialist gross trading profits were not significantly altered, but their participation increased. Cross-sectional analyses reveal that participation rates and high-frequency trading profits increased more for specialists handling stocks where the cost and opportunity of obtaining order precedence were relatively expensive and scarce prior to the tick change.
Number of Pages in PDF File: 46 Keywords: NYSE Specialists, Decimalization, Trading Profits, Spectral Analysis JEL Classification: C22, G18, G20 working papers seriesDate posted: April 30, 2004Suggested CitationContact Information
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