Differences in Trading Behavior Across NYSE Specialist Firms

Abstract

Using a sample of common stocks listed on the NYSE during 1992, this article examines whether measures of market-maker performance differ across specialist firms. We find that spreads and depth differ across specialist firms, but the competitiveness of NYSE quotes relative to other exchanges does not appear to be affected by these differences. We also find evidence of differences in transitory volatility across specialist firms. Finally, both the frequency and duration of order-imbalance trading halts differ across specialist firms. These results suggest that specialist firms have a significant effect on execution costs, liquidity and the amount of noise in security prices and that these effects are not completely eliminated by competition or the NYSE's monitoring mechanisms.

JEL Classification: G1