Spreads, Depths, and Quote Clustering on the NYSE and NASDAQ: Evidence after the 1997 Securities and Exchange Commission Rule Changes

34 Pages Posted: 13 Aug 2002

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Bonnie F. Van Ness

University of Mississippi - Department of Finance

Robert A. Van Ness

University of Mississippi - Department of Finance

Date Written: April 2002

Abstract

This paper examines liquidity and quote clustering on the NYSE and Nasdaq using data after the two market reforms - the 1997 order-handling rule and minimum tick size changes. We find that Nasdaq-listed stocks exhibit wider spreads and smaller depths than NYSE-listed stocks and stocks with higher proportions of even-eighth and even-sixteenth quotes have wider quoted, effective, and realized spreads on both the NYSE and Nasdaq. This result differs from the findings by Bessembinder (1999, p. 404) that "trade execution costs on Nasdaq in late 1997 are no longer significantly explained by a tendency for liquidity providers to avoid odd-eighth quotations," and "odd-sixteenth avoidance has little relevance for explaining post-reform Nasdaq trading costs."

Keywords: liquidity, spreads, depths, quote clustering, collusion

JEL Classification: G14, G18

Suggested Citation

Chung, Kee H. and Van Ness, Bonnie F. and Van Ness, Robert A., Spreads, Depths, and Quote Clustering on the NYSE and NASDAQ: Evidence after the 1997 Securities and Exchange Commission Rule Changes (April 2002). Available at SSRN: https://ssrn.com/abstract=308542 or http://dx.doi.org/10.2139/ssrn.308542

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

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

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States