The Revocation of Rule 390 - a First Look

29 Pages Posted: 8 Jan 2001

See all articles by Tai-Kong Kam

Tai-Kong Kam

Teachers Insurance and Annuity Association College Retirement Equities Fund (TIAA-CREF); National University of Singapore (NUS)

Venkatesh Panchapagesan

The Goldman Sachs Group, Inc.

Daniel G. Weaver

Rutgers Business School

Date Written: December 7, 2000

Abstract

The New York Stock Exchange repealed its Rule 390 on May 8, 2000. The rule disallowed exchange members from trading stocks listed prior to April 26, 1979 outside of an exchange. We examine in this paper some of the implications of the rule's repeal. In particular, we examine changes in market quality such as spreads, depth, and price improvement. We find that quoted spreads decreased by 16 percent on average, while effective spreads declined by six percent. Moreover, quoted depth at the NYSE increased by five percent, while fewer trades were price improved. Our results suggest that the NYSE specialists improved liquidity following the repeal to remain competitive. In fact, we find that the NYSE increased its market share, especially in smaller trades that were expected to migrate following the repeal.

Keywords: Microstructure, competition, market quality, New York Stock Exchange

JEL Classification: G15, G18, G19

Suggested Citation

Kam, Tai-Kong and Panchapagesan, Venkatesh (Venky) and Weaver, Daniel G., The Revocation of Rule 390 - a First Look (December 7, 2000). Available at SSRN: https://ssrn.com/abstract=253112 or http://dx.doi.org/10.2139/ssrn.253112

Tai-Kong Kam

Teachers Insurance and Annuity Association College Retirement Equities Fund (TIAA-CREF) ( email )

National University of Singapore (NUS)

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Venkatesh (Venky) Panchapagesan

The Goldman Sachs Group, Inc. ( email )

85 Broad Street
New York, NY 10004
United States

Daniel G. Weaver (Contact Author)

Rutgers Business School ( email )

94 Rockafeller Road
Piscataway, NJ 08854
United States
848.445.5644 (Phone)
732.445.2333 (Fax)

HOME PAGE: http://weaver.rutgers.edu

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