Inter-Market Competition for NYSE-Listed Securities under Decimals

32 Pages Posted: 13 Apr 2007 Last revised: 7 Feb 2011

See all articles by Michael A. Goldstein

Michael A. Goldstein

Babson College - Finance Division

Andriy Shkilko

Wilfrid Laurier University - Lazaridis School of Business and Economics

Bonnie F. Van Ness

University of Mississippi - Department of Finance

Robert A. Van Ness

University of Mississippi - Department of Finance

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

Goldstein, Michael A. and Shkilko, Andriy and Van Ness, Bonnie F. and Van Ness, Robert A., Inter-Market Competition for NYSE-Listed Securities under Decimals (July 29, 2008). Review of Quantitative Finance and Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=979534 or http://dx.doi.org/10.2139/ssrn.979534

Michael A. Goldstein

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)

Bonnie F. Van Ness

University of Mississippi - Department of Finance ( email )

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

Robert A. Van Ness (Contact Author)

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

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