Quote-Based Competition, Market Share, and Execution Quality in Nasdaq-Listed Securities

43 Pages Posted: 2 Jan 2007

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Chairat Chuwonganant

Indiana University Purdue University Fort Wayne

Abstract

We show that competitive quotes help increase dealer market share on NASDAQ, despite the fact that a large proportion of order flow is preferenced. We find that decimal pricing and the introduction of new trading platforms such as SuperSOES and SuperMontage have significantly changed the effect of quote aggressiveness on dealer market share. In particular, decimal pricing reduces (increases) the price (size) elasticity, SuperSOES increases the size elasticity, and SuperMontage increases both the size and price elasticity of dealer market share. We also show that market centers provide greater price improvements and faster executions when they post competitive quotes.

Keywords: Dealer market share, Quote aggressiveness, Order preferencing, Decimalization, SuperSOES, SuperMontage

JEL Classification: G18, G19

Suggested Citation

Chung, Kee H. and Chuwonganant, Chairat, Quote-Based Competition, Market Share, and Execution Quality in Nasdaq-Listed Securities. Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=954558

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

Chairat Chuwonganant

Indiana University Purdue University Fort Wayne

2101 E Coliseum Boulevard East
Fort Wayne, IN 46805
United States

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