Download This PaperMarket Liquidity and Competition among Designated Market Makers
forthcoming in Management Science
Proceedings of Paris December 2019 Finance Meeting EUROFIDAI - ESSEC
114 Pages Posted: 18 Apr 2019 Last revised: 1 Nov 2023
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: Suggested Citation
Leibniz Institute for Financial Research SAFE ( email )
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany
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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 )
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Suite 9-160
New York, NY NY 10012
United States