Price Improvement and Order Execution Quality on the Boston Options Exchange

40 Pages Posted: 21 Nov 2006 Last revised: 27 Oct 2010

Nabil Khoury

University of Quebec at Montreal (UQAM) - Faculty of Management (ESG)

Stylianos Perrakis

Concordia University, Quebec - John Molson School of Business

Marko Savor

University of Quebec in Montreal

Date Written: December 1, 2006

Abstract

This study focuses on innovations in order execution processes in competitive option markets. More specifically, it examines the impact of new competition arising from the Price Improvement Process introduced by the Boston Options Exchange on options spreads and the quality of order execution. Using an original data set, the paper shows that the marginal price improvement averages 1.49% of the option price quoted immediately before the transaction, and that this improvement varies according to order size and market liquidity. Moreover, price effects appear to be temporary as quoted spreads immediately after PIP related transactions revert to their previous higher level.

Keywords: market microstructure, options, price improvement process

JEL Classification: G14, C23

Suggested Citation

Khoury, Nabil and Perrakis, Stylianos and Savor, Marko, Price Improvement and Order Execution Quality on the Boston Options Exchange (December 1, 2006). Available at SSRN: https://ssrn.com/abstract=946110 or http://dx.doi.org/10.2139/ssrn.946110

Nabil Khoury

University of Quebec at Montreal (UQAM) - Faculty of Management (ESG) ( email )

Case postale 8888
Succursale Centre-ville
Montreal, Quebec H3C 3P8
Canada
514-987-3000 x6717 (Phone)

Stylianos Perrakis

Concordia University, Quebec - John Molson School of Business ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

Marko Savor (Contact Author)

University of Quebec in Montreal ( email )

Case postale 8888
Succursale Centre-ville
Montreal, Quebec H3C 3P8
Canada
514-987-3000 ext.: 8553 (Phone)

HOME PAGE: http://www.uqam.ca

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