Inter-Market Competition for NYSE-Listed Securities under Decimals
32 Pages Posted: 13 Apr 2007 Last revised: 15 Dec 2009
Date Written: July 29, 2008
Abstract
Blume and Goldstein [Journal of Finance 52, 1997, 221-244] suggest that quote competition between trading venues may diminish following tick size reductions. We test this suggestion by studying the competitive landscape in the NYSE-listed stocks before and after decimalization. We find that NBBO (National Best Bid and Offer) participation by non-NYSE venues declines following decimalization consistent with the prediction. At the same time, the importance of quote competitiveness in attracting order flow increases. In addition, although not as active in determining and maintaining the best quotes under decimals, non-NYSE venues become more active in price discovery. Finally, decimalization leads to lower trading costs and to smaller differences in trading costs across trading venues.
Keywords: Competition, market microstructure, execution costs
JEL Classification: G10, G19
Suggested Citation: Suggested Citation
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