Pre-Opening Price Indications and Market Quality: Evidence from NYSE Rule 48
55 Pages Posted: 5 Jun 2019 Last revised: 10 Jan 2020
Date Written: May 19, 2019
NYSE Rule 48 suspends the responsibility of designated market makers for disseminating pre-opening price indications in the event of an extreme market-wide volatility. We show that Rule 48 speeds up the opening of stocks at the expense of lower liquidity. Specifically, the absence of pre-opening price indications results in decreases in various measures of liquidity during the first 30-minutes of the trading day that are statistically and economically significant. We interpret this finding as evidence that liquidity suppliers are less willing to provide liquidity in the absence of a reference point or benchmark regarding the value of a stock.
Keywords: Pre-opening price indications, NYSE, designated market maker, opening delay, liquidity, market volatility, Rule 48
JEL Classification: G01, G10, G14, G18
Suggested Citation: Suggested Citation