Priority Rules

65 Pages Posted: 29 May 2018 Last revised: 10 Dec 2020

See all articles by Hans Degryse

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Nikolaos Karagiannis

University of Manchester - Alliance Manchester Business School; KU Leuven - Faculty of Business and Economics (FEB)

Date Written: October 1, 2017

Abstract

While regulators often mandate price priority across markets, they do not impose
secondary priority rules. Order preferencing by a broker to a specific market may then
serve as tiebreaker. We compare order preferencing, modeled as price-broker-time priority (PBT), to price-time priority (PT). The secondary priority rule determines a limit
order’s execution probability, and hence investors’ choice between limit and market orders. When the tick is tight relative to the dispersion in investors’ valuations, trading
rates are higher with PBT whereas investor welfare is higher with PT. The opposite
holds for wide ticks. Our model has empirical and regulatory implications regarding
market fragmentation.

Keywords: Limit order markets, Trading Protocols, Time Priority, Welfare

JEL Classification: G00, G10, G11, G18

Suggested Citation

Degryse, Hans and Karagiannis, Nikolaos, Priority Rules (October 1, 2017). Available at SSRN: https://ssrn.com/abstract=3186009 or http://dx.doi.org/10.2139/ssrn.3186009

Hans Degryse (Contact Author)

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Nikolaos Karagiannis

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
63
Abstract Views
1,062
rank
395,489
PlumX Metrics