The Impact of Order Protection Rule on Market Liquidity and Price Discovery
44 Pages Posted: 30 Jul 2018 Last revised: 9 Nov 2018
Date Written: November 8, 2018
This paper examines the impact of the Order Protection Rule on market liquidity and the efficiency of price discovery in the U.S. and Canadian markets. Overall, we find increased trading activities due to reduced transaction costs. In the U.S. markets, using the difference in differences methodology, we find a more efficient price discovery process, and the increased liquidity mainly happens to lit markets. In the Canadian markets, we find the significant improvement in quoted depth and percentage time at the national best bid and offer in small trading venues. Our findings are contrary to previous studies and shed light on potential causes of the variation.
Keywords: Reg NMS, Liquidity, Price Discovery
JEL Classification: G12, G14
Suggested Citation: Suggested Citation