An Examination of the Dissemination of Island Trades Through the Cincinnati Stock Exchange

Abstract

On March 18th 2002, the ECN Island, in a cost saving move, began reporting trades to the Cincinnati Stock Exchange (CSE). We use this trade reporting change to analyze differences in trading costs between Island and Nasdaq. We analyze trade-based execution costs for Nasdaq trades and Island trades that are disseminated through the CSE. We find that effective spreads, percentage effective spreads and traded spreads are all significantly lower for Island trades. In addition, we examine trade price clustering and find a higher degree of clustering on nickels, dimes and quarters for trades executed by Nasdaq than for Island trades.

Keywords: Nasdaq, Cincinnati, Island

JEL Classification: G10, G23