The Quality of ECN and Nasdaq Market Maker Quotes

This paper compares the quality of quotes submitted by electronic communication networks (ECNs) and by traditional market makers to the Nasdaq quote montage. An analysis of the most active Nasdaq stocks shows that ECNs not only post informative quotes, but also, compared to market makers, ECNs post...

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Bibliographic Details
Published in:The Journal of finance (New York) 2002-06, Vol.57 (3), p.1285-1319
Main Author: Huang, Roger D.
Format: Article
Language:English
Subjects:
Communication networks
Corporations
Economic information
Finance
Financial securities
Limit orders
Liquidity
Market prices
Market theory
Nasdaq Composite Index
NASDAQ trading
Online securities trading
Order flow
Price leadership
Securities trading volume
Service introduction
Statistical analysis
Stock prices
Stocks
Studies
Trade
Wholesale trade
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Summary:This paper compares the quality of quotes submitted by electronic communication networks (ECNs) and by traditional market makers to the Nasdaq quote montage. An analysis of the most active Nasdaq stocks shows that ECNs not only post informative quotes, but also, compared to market makers, ECNs post quotes rapidly and are more often at the inside. Additionally, ECN quoted spreads are smaller than dealer quoted spreads. The evidence suggests that the proliferation of alternative trading venues, such as ECNs, may promote quote quality rather than fragmenting markets. Moreover, the results suggest that a more open book contributes to quote quality.
ISSN:0022-1082
1540-6261
DOI:10.1111/1540-6261.00461