Do Stock Exchanges Specialize? Evidence from the New Jersey Transaction Tax Proposal

40 Pages Posted: 11 Oct 2021 Last revised: 23 Mar 2022

See all articles by Rasheek Irtisam

Rasheek Irtisam

University of Memphis - Fogelman College of Business and Economics

Konstantin Sokolov

University of Memphis - Fogelman College of Business and Economics

Date Written: October 4, 2021

Abstract

Exchange ownership in the U.S. is often characterized as excessively concentrated. This leads to a concern that such concentration may prevent peripheral exchanges from mitigating adverse selection costs associated with low-latency arbitrage. We examine this concern using low-latency connectivity disruptions caused by recent temporary relocations of two markets, NYSE Chicago and Nasdaq PSX, in response to a transaction bill proposal. Although both exchanges had previously announced measures to curb low-latency trading, the connectivity disruptions cause a substantial reduction in adverse selection. These results suggest that peripheral markets have little incentive to implement measures restricting low-latency arbitrage.

Keywords: Peripheral Markets, Adverse Selection, Liquidity, Connectivity

JEL Classification: G10, G14

Suggested Citation

Irtisam, Rasheek and Sokolov, Konstantin, Do Stock Exchanges Specialize? Evidence from the New Jersey Transaction Tax Proposal (October 4, 2021). Available at SSRN: https://ssrn.com/abstract=3935946 or http://dx.doi.org/10.2139/ssrn.3935946

Rasheek Irtisam

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

Konstantin Sokolov (Contact Author)

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

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