Competition in the Market for Nasdaq Securities

39 Pages Posted: 15 Sep 2004 Last revised: 17 Dec 2009

Michael A. Goldstein

Babson College - Finance Division

Andriy Shkilko

Wilfrid Laurier University - Lazaridis School of Business and Economics

Robert A. Van Ness

University of Mississippi - Department of Finance

Bonnie F. Van Ness

University of Mississippi - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 22, 2007

Abstract

The study investigates competition in the market for NASDAQ stocks during a recent period in U.S. equity markets history when three major ECNs - Archipelago, Island, and Instinet - are identifiable in TAQ. We show that the ECNs compete with NASDAQ's SuperMontage on the basis of quotes, execution times, and costs. The three ECNs differ due to uniqueness of their limit order books, cost schedules, and heterogeneity of trading clienteles. Informed traders are shown to prefer venues with sufficient liquidity over those that guarantee anonymity of executions. Despite high levels of segmentation, uneven regulation, and controversial order attraction practices, quote competitiveness is found to increase the probability of executions on all four venues.

Keywords: NASDAQ, Competition

JEL Classification: G20

Suggested Citation

Goldstein, Michael A. and Shkilko, Andriy and Van Ness, Robert A. and Van Ness, Bonnie F., Competition in the Market for Nasdaq Securities (March 22, 2007). Journal of Financial Markets, Vol. 11, No. 2, 2008. Available at SSRN: https://ssrn.com/abstract=589622 or http://dx.doi.org/10.2139/ssrn.589622

Michael A. Goldstein (Contact Author)

Babson College - Finance Division ( email )

320 Tomasso Hall
Babson Park, MA 02457-0310
United States
781-239-4402 (Phone)
781-239-5004 (Fax)

HOME PAGE: http://faculty.babson.edu/goldstein/

Andriy Shkilko

Wilfrid Laurier University - Lazaridis School of Business and Economics ( email )

LH 4050
75 University Ave. W.
Waterloo, Ontario N2L3C5
Canada
519.884.0710 ext. 2462 (Phone)
519.884.0201 (Fax)

Robert A. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

Bonnie F. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States
662-915-6749 (Phone)
662-915-7968 (Fax)

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