Sub-Penny and Queue-Jumping

53 Pages Posted: 6 Nov 2013 Last revised: 6 Aug 2015

See all articles by Sabrina Buti

Sabrina Buti

Université Paris Dauphine - Department of Finance

Francesco Consonni

Bocconi University - Department of Finance

Barbara Rindi

Bocconi University and IGIER and Baffi Carefin

Yuanji Wen

The University of Western Australia - Department of Accounting and Finance

Ingrid M. Werner

The Ohio State University - Fisher College of Business

Date Written: July 1, 2015

Abstract

We develop a model where a public limit order book (PLB) competes with a Sub-Penny Venue, which allows Sub-Penny Trading (SPT). SPT occurs when a trader undercuts orders in the PLB by less than one penny, a practice we call queue-jumping (QJ). QJ is higher for NASDAQ than for NYSE stocks. We confirm the model's predictions that QJ increases in liquidity and in the tick-to-price ratio. We also find that QJ is associated with improved PLB market quality, especially for large capitalization stocks. Finally, we show that High Frequency Trading is negatively related to QJ.

Keywords: Sub-penny trading, fragmentation, dark pools, market quality, price discovery, market efficiency, SEC, microstructure

JEL Classification: G10, G12, G14, G18, G20

Suggested Citation

Buti, Sabrina and Consonni, Francesco and Rindi, Barbara and Wen, Yuanji and Werner, Ingrid M., Sub-Penny and Queue-Jumping (July 1, 2015). Charles A. Dice Center Working Paper No. 2013-18; Fisher College of Business Working Paper No. 2013-03-18; Rotman School of Management Working Paper No. 2350424. Available at SSRN: https://ssrn.com/abstract=2350424 or http://dx.doi.org/10.2139/ssrn.2350424

Sabrina Buti

Université Paris Dauphine - Department of Finance ( email )

Place du Maréchal de Lattre de Tassigny
Paris Cedex 16, 75775
France

Francesco Consonni

Bocconi University - Department of Finance ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Barbara Rindi

Bocconi University and IGIER and Baffi Carefin ( email )

Via Roentgen 1
Milan, 20136
Italy
+39 58365328 (Phone)

HOME PAGE: http://faculty.unibocconi.eu/barbararindi

Yuanji Wen

The University of Western Australia - Department of Accounting and Finance ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Ingrid M. Werner (Contact Author)

The Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-6460 (Phone)
614-292-2418 (Fax)

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