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Competition on the Nasdaq and the Impact of Recent Market Reforms
Author(s) -
Weston James P.
Publication year - 2000
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00300
Subject(s) - ceteris paribus , economic rent , competition (biology) , economics , monetary economics , business , financial economics , market economy , microeconomics , ecology , biology
This paper examines the effect of recent market reforms on the competitive structure of the Nasdaq. Our results show that changes in inventory and information costs cannot explain the post‐reform decrease in bid‐ask spreads. We interpret this as evidence that the reforms have reduced Nasdaq dealers' rents. Additionally, we find that the difference between NYSE and Nasdaq spreads have been greatly diminished with the new rules. Further, the reforms have resulted in an exit, ceteris paribus , from the industry for market making. Overall, our results provide strong evidence that the reforms have improved competition on the Nasdaq.