Trading rules, competition for order flow and market fragmentation

• 成果类型: Article
• 署名作者: Kwan, Amy; Masulis, Ronald; McInish, Thomas H.
• 署名单位: University of Sydney; University of New South Wales Sydney; University of Memphis
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2014.09.010
• 发表日期: 2015
• 页码: 330-348
• 关键词: Market fragmentation; regression discontinuity; Dark pools; Trade reporting facility

摘要

We investigate competition between traditional stock exchanges and new dark trading venues using an important difference in regulatory treatment. Securities and Exchange Commission required minimum pricing increments constrain some stock spreads, causing large limit order queues. Dark pools allow some traders to bypass existing limit order queues with minimal price improvement. Using a regression discontinuity design, we find that spread constraints significantly weaken exchanges' competitiveness. As more orders migrate to dark pools, the probability of subsequent order execution there increases, raising liquidity. The ability to circumvent time priority of displayed limit orders is one cause of the rapid rise in US equity market fragmentation. (c) 2014 Elsevier B.V. All rights reserved.