Market Integration and Price Execution for NYSE-Listed Securities

Charles M.C. Lee

246 citations0/0 files storedThe Journal of Finance

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Financial Markets and Investment Strategies Corporate Finance and Governance Securities Regulation and Market Practices

Abstract

ABSTRACT For New York Stock Exchange (NYSE) listed securities, the price execution of seemingly comparable orders differs systematically by location. In general, executions at the Cincinnati, Midwest, and New York stock exchanges are most favorable to trade initiators, while executions at the National Association of Security Dealers (NASD) are least favorable. These intermarket price differences depend on trade size, with the smallest trades exhibiting the biggest per share price difference. Collectively, these results raise questions about the adequacy of the existing intermarket quote system (ITS), the broker's fiduciary responsibility for “best execution,” and the propriety of order flow inducements.

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References

1985Bid, ask and transaction prices in a specialist market with heterogeneously informed traders 1991Inferring Trade Direction from Intraday Data 1987Price, trade size, and information in securities markets 1993Spreads, Depths, and the Impact of Earnings Information: An Intraday Analysis 1985An Investigation of Transactions Data for NYSE Stocks 1985An Investigation of Transactions Data for NYSE Stocks 1988Trades, quotes, inventories, and information 1988The implementation shortfall

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2013Measuring Liquidity in Bond Markets 2003Liquidity-Based Competition for Order Flow 2006The Impact of Legal and Political Institutions on Equity Trading Costs: A Cross-Country Analysis 1997The Impact of Decimalization on Market Quality: An Empirical Investigation of the Toronto Stock Exchange 1998An empirical analysis of NYSE specialist trading1We thank Jim Cochrane, Joel Hasbrouck, Don Keim, Kim Shapiro, Jerry Warner, and an anonymous referee for their helpful comments. Seminar participants at the Ohio State Conference on `Dealer Markets', London School of Economics, University of Pennsylvania, and University of Wisconsion provided many helpful suggestions. Minder Cheng, Nicole Parent, and Ed Steffelin provided excellent research support. This research was completed while Madhavan was visiting the New York Stock Exchange. The comments and opinions contained in this paper are those of the authors and do not necessarily reflect those of the directors, members or officers of the New York Stock Exchange, Inc.1

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