Displayed and Effective Spreads By Market

Abstract

This study explores the integration of the markets for NYSE-listed stocks. Although the NYSE bid or offer is part of the best displayed intermarket quote roughly ninety percent of the time, there is some evidence that non-NYSE markets do on occasion contribute to price discovery. Actual execution prices for NYSE-listed stocks sometimes fall within the best displayed intermarket quote. The average effective spread across all stocks is 13.5 cents, which is 76.2 percent of the best displayed intermarket spread. Often, the best displayed spread is almost double the average effective spread. For 100- and 200-share prints, the average effective spread on the NYSE is consistently less than on non-NYSE markets, but for prints of 1,000 to 3,000 shares, the reverse sometimes occurs.

Keywords: effective spreads, displayed spreads, best intermarket quote, NYSE, regionals

JEL Classification: G10, G18, G19, G20, G28