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Spreads, Depths, and Quote Clustering on the NYSE and Nasdaq: Evidence after the 1997 Securities and Exchange Commission Rule Changes
Author(s) -
Chung Kee H.,
Van Ness Bonnie F.,
Van Ness Robert A.
Publication year - 2002
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/1540-6288.00025
Subject(s) - market liquidity , tick size , market maker , business , commission , financial economics , order (exchange) , monetary economics , economics , finance , stock market , geography , context (archaeology) , archaeology
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.”