Spreads, Depths, and Quote Clustering on the NYSE and Nasdaq: Evidence after the 1997 Securities and Exchange Commission Rule Changes

Spreads, Depths, and Quote Clustering on the NYSE and Nasdaq: Evidence after the 1997 Securities... This paper examines liquidity and quote clustering on the NYSE and Nasdaq using data after the two market reforms—the 1997 order–handling rule and minimum tick size changes. We find that Nasdaq–listed stocks exhibit wider spreads and smaller depths than NYSE–listed stocks and stocks with higher proportions of even–eighth and even–sixteenth quotes have wider quoted, effective, and realized spreads on both the NYSE and Nasdaq. This result differs from the findings by Bessembinder (1999, p. 404) that “trade execution costs on Nasdaq in late 1997 are no longer significantly explained by a tendency for liquidity providers to avoid odd–eighth quotations,” and “odd–sixteenth avoidance has little relevance for explaining post–reform Nasdaq trading costs.” http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Financial Review Wiley

Spreads, Depths, and Quote Clustering on the NYSE and Nasdaq: Evidence after the 1997 Securities and Exchange Commission Rule Changes

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Publisher
Wiley
Copyright
2002 by the Eastern Finance Association
ISSN
0732-8516
eISSN
1540-6288
D.O.I.
10.1111/1540-6288.00025
Publisher site
See Article on Publisher Site

Abstract

This paper examines liquidity and quote clustering on the NYSE and Nasdaq using data after the two market reforms—the 1997 order–handling rule and minimum tick size changes. We find that Nasdaq–listed stocks exhibit wider spreads and smaller depths than NYSE–listed stocks and stocks with higher proportions of even–eighth and even–sixteenth quotes have wider quoted, effective, and realized spreads on both the NYSE and Nasdaq. This result differs from the findings by Bessembinder (1999, p. 404) that “trade execution costs on Nasdaq in late 1997 are no longer significantly explained by a tendency for liquidity providers to avoid odd–eighth quotations,” and “odd–sixteenth avoidance has little relevance for explaining post–reform Nasdaq trading costs.”

Journal

Financial ReviewWiley

Published: Nov 1, 2002

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