Competition Among Market Centers

48 Pages Posted: 8 Dec 2003

See all articles by Marc L. Lipson

Marc L. Lipson

University of Virginia - Darden School of Business

Date Written: December 2003


We examine competition among six market centers for NYSE-listed stocks using SEC Rule 11ac-5 data. We find that: market centers competing with the NYSE execute orders in only a subset of stocks, order types and order sizes, that differences in effective spreads are generally much smaller than suggested by comparisons of overall averages though reliable differences remain, that order flow routed to the NYSE is substantially more informed that order flow routed to broker-dealers and other exchanges (though less informed than marketable limit orders routed to ECNs), and that prevailing spreads differ at time of order arrival. More importantly, we find that differences in effective spreads between the NYSE and some market centers are related to characteristics of the stocks traded. Taken together, our results suggest that competition among market centers is imperfect and that some market centers carve out profitable niches in the stocks they trade and/or the orders they execute.

Suggested Citation

Lipson, Marc Lars, Competition Among Market Centers (December 2003). AFA 2004 San Diego Meetings. Available at SSRN: or

Marc Lars Lipson (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
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