Order Cancellations, Fees, and Execution Quality in U.S. Equity Options

48 Pages Posted: 18 Dec 2017 Last revised: 22 May 2019

See all articles by Todd Griffith

Todd Griffith

Utah State University

Robert A. Van Ness

University of Mississippi - Department of Finance

Date Written: May 20, 2019

Abstract

We examine the effects of an order cancellation fee on limit order flow and execution quality in the PHLX options market. The cancellation fee on professional order flow is effective in reducing the rate at which limit orders are canceled. While the cancellation fee discourages the submission of non-marketable orders, it encourages the submission of marketable orders. Consequently, non-marketable order fill rates increase, marketable order fill speeds decrease, and bid-ask spreads widen. We also find slight increases in both dollar volume and market share. We explore whether a change in pick-off risk is a potential explanation for these new findings and policy implications.

Keywords: Limit Orders, Cancellation Rates, Fees, Execution Quality

JEL Classification: G10, G14

Suggested Citation

Griffith, Todd and Van Ness, Robert A., Order Cancellations, Fees, and Execution Quality in U.S. Equity Options (May 20, 2019). Available at SSRN: https://ssrn.com/abstract=3088841 or http://dx.doi.org/10.2139/ssrn.3088841

Todd Griffith

Utah State University ( email )

Logan, UT 84322
United States
4357979098 (Phone)

Robert A. Van Ness (Contact Author)

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
99
Abstract Views
905
Rank
551,066
PlumX Metrics