Market Liquidity and Competition among Designated Market Makers

114 Pages Posted: 18 Apr 2019 Last revised: 1 Nov 2023

See all articles by Mario Bellia

Mario Bellia

European Union - JRC-Ispra, European Commision

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE; Ca Foscari University of Venice - Dipartimento di Economia

Marti G. Subrahmanyam

New York University (NYU) - Leonard N. Stern School of Business

Darya Yuferova

Norwegian School of Economics (NHH) - Department of Finance

Date Written: October 25, 2023

Abstract

Do competition and incentives offered to designated market makers (DMMs) improve market liquidity? We employ data from NYSE Euronext Paris to show that exogenous changes in contract design lead to significant decreases in quoted and effective spreads. In particular, market liquidity increases the most for stocks with the largest increase in competition among DMMs. Our analysis shows that competition among DMMs is an important aspect of contract design, along with elements such as rebates and requirements.

Keywords: Designated Market Makers (DMMs), Liquidity Provision

JEL Classification: G12, G14

Suggested Citation

Bellia, Mario and Pelizzon, Loriana and Subrahmanyam, Marti G. and Yuferova, Darya, Market Liquidity and Competition among Designated Market Makers (October 25, 2023). forthcoming in Management Science, SAFE Working Paper No. 247, Proceedings of Paris December 2019 Finance Meeting EUROFIDAI - ESSEC, NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3354400 or http://dx.doi.org/10.2139/ssrn.3354400

Mario Bellia

European Union - JRC-Ispra, European Commision ( email )

Via Enrico Fermi 2749, Ispra, VA
Ispra (VA), 21027
Italy

Loriana Pelizzon (Contact Author)

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.safe-frankfurt.de

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Marti G. Subrahmanyam

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Darya Yuferova

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

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