Option Auctions

• 成果类型: Article; Early Access
• 署名作者: Hendershott, Terrence; Khan, Saad Ali; Riordan, Ryan
• 署名单位: University of California System; University of California Berkeley; Universite de Montreal; HEC Montreal; University of Munich; Queens University - Canada
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhaf043
• 发表日期: 2025
• 关键词: bid-ask spreads; market-structure; trading costs; Order Flow; COMPETITION; payment

摘要

Wholesale market makers pay for retail options orders that must be executed on exchanges. Payment for order flow (PFOF) wholesalers compete via price improvement in exchange auctions. To attract retail orders, wholesalers run more auctions when their recent price improvement has been lower. However, auction price improvement lowers market maker revenues. Wholesalers earn revenues to pay PFOF in nonauction trades where their designated market maker status increases their execution priority. While some auctions produce substantial price improvement, most do not have multiple bidders offering meaningful price improvement. Overall, options market structure better promotes competition in auctions than in nonauctions.