Exchange Entrances, Mergers and the Evolution of Order Flow on NASDAQ 1993-2010

34 Pages Posted: 14 Oct 2011 Last revised: 6 Dec 2011

See all articles by Robert H. Battalio

Robert H. Battalio

University of Notre Dame - Department of Finance

Jared F. Egginton

Boise State University - College of Business & Economics

Bonnie F. Van Ness

University of Mississippi - Department of Finance

Robert A. Van Ness

University of Mississippi - Department of Finance

Date Written: October 10, 2011

Abstract

We examine the changes in order flow on NASDAQ from 1993 through 2010. We find that while volume and the number of trades are increasing for NASDAQ-listed securities, the percentage of volume that executes on NASDAQ declines from almost 100% in the 1990’s to less than 40% in 2010. We examine the entrants of new exchanges on NASDAQ and the merger of NASDAQ and several exchanges. We do not find that either entrants of new trading venues of the merging of trading venues leads to a change in total volume of securities executed. We find that the number of trading locations increases trading costs, but as order flow becomes more fragmented, trading costs decline. We see that as order flow fragments on NASDAQ, the speed of execution increases, and find little relation between the number of exchange/venues that trade NASDAQ stocks and the speed of execution. We also document a large increase in the number of cancelled orders for NASDAQ-listed securities, and this is increasing over time.

Keywords: Nasdaq, trading, trading costs, canceled orders

JEL Classification: G10

Suggested Citation

Battalio, Robert H. and Egginton, Jared Frank and Van Ness, Bonnie F. and Van Ness, Robert A., Exchange Entrances, Mergers and the Evolution of Order Flow on NASDAQ 1993-2010 (October 10, 2011). Available at SSRN: https://ssrn.com/abstract=1941956 or http://dx.doi.org/10.2139/ssrn.1941956

Robert H. Battalio

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States
574-631-9428 (Phone)
574-631-5255 (Fax)

Jared Frank Egginton

Boise State University - College of Business & Economics ( email )

United States
2084264586 (Phone)

Bonnie F. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States
662-915-6749 (Phone)
662-915-7968 (Fax)

Robert A. Van Ness (Contact Author)

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

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