Unfiltered Market Access and Liquidity: Evidence from the SEC Rule 15c3-5

• 成果类型: Article
• 署名作者: Chakrabarty, Bidisha; Jain, Pankaj K.; Shkilko, Andriy; Sokolov, Konstantin
• 署名单位: Saint Louis University; University of Memphis; Wilfrid Laurier University; University of Sydney
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2019.3466
• 发表日期: 2021
• 关键词: liquidity; unfiltered market access; picking off risk; latency-sensitive trading

摘要

In November 2011, the U.S. Securities and Exchange Commission implemented the final provision of Rule 15c3-5 curbing unfiltered market access. The provision mandated that brokers verify their clients' order flow for compliance with credit and capital thresholds before routing to market centers. We find that the new checks introduce latency to order flow and force some latency-sensitive strategies out of the market. As a result, liquidity providers are better able to revise their quotes in response to new information, adverse selection declines, and liquidity improves. Consistent with the notion that the market for liquidity provision is competitive, our results show that the benefit of lower adverse selection is transferred entirely to liquidity demanders in the form of lower trading costs.