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
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: Suggested Citation