How Best to Supply Liquidity to a Small-Capitalization Securities Market

Posted: 11 May 1998

See all articles by James Angel

James Angel

Georgetown University - Department of Finance

Date Written: July 1996

Abstract

There is a worldwide search for better ways to supply liquidity for small-capitalization stocks. Although Nasdaq provides a liquid market for such stocks by giving broker-dealers financial incentives to generate order flow, recent allegations of dealer collusion have led to calls for reform. It is possible to design a fair, transparent computerized market that also creates incentives for broker-dealers to generate order flow by using secondary priority rules other than time. A nontrivial relative tick size is also important for providing liquidity by enforcing priority rules.

JEL Classification: G10, G18

Suggested Citation

Angel, James J., How Best to Supply Liquidity to a Small-Capitalization Securities Market (July 1996). Available at SSRN: https://ssrn.com/abstract=7595

James J. Angel (Contact Author)

Georgetown University - Department of Finance ( email )

McDonough School of Business
Washington, DC 20057
United States
202-687-3765 (Phone)
202-687-4031 (Fax)

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