On the Potential Cost of Mandating Qualified Auctions for Marketable Retail Orders

The Journal of Investing, January 2024, 33 (1) 69-99 DOI: 10.3905/joi.2023.1.287

Posted: 11 Apr 2023 Last revised: 5 Aug 2023

See all articles by Robert H. Battalio

Robert H. Battalio

University of Notre Dame - Department of Finance

Robert H. Jennings

Indiana University - Kelley School of Business - Department of Finance

Date Written: August 4, 2023

Abstract

While the United States Securities and Exchange Commission utilized their proprietary Consolidated Audit Trail data in its analysis of the potential benefits of the proposed Order Competition Rule (OCR), they instead chose to utilize an algorithm to infer potential retail trades in the publicly available Trade and Quote database to estimate the potential costs of the proposed rule. In this paper, we use a proprietary dataset of actual retail orders and the publicly available TAQ data to examine the implications of using inferred retail trades rather than actual retail orders to estimate the potential costs of the OCR. We present evidence suggesting the Commission's decision to use inferred retail trades rather than actual retail orders produces significantly lower cost estimates than are obtained using actual orders. Using actual orders, our annualized cost estimates exceed the lower bound of the Commission’s estimates of the benefits of the OCR. Based on this evidence, we recommend the Commission table the OCR.

Keywords: Auctions Proposal, Order Competition Rule, Fade Analysis

JEL Classification: g10

Suggested Citation

Battalio, Robert H. and Jennings, Robert H., On the Potential Cost of Mandating Qualified Auctions for Marketable Retail Orders (August 4, 2023). The Journal of Investing, January 2024, 33 (1) 69-99 DOI: 10.3905/joi.2023.1.287, Available at SSRN: https://ssrn.com/abstract=4403047 or http://dx.doi.org/10.2139/ssrn.4403047

Robert H. Battalio (Contact Author)

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States
574-631-9428 (Phone)
574-631-5255 (Fax)

Robert H. Jennings

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-2696 (Phone)
812-855-5875 (Fax)

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