Decimalization and competition among stock markets: Evidence from the Toronto Stock Exchange cross-listed securities

We study the impact of Toronto Stock Exchange (TSE) decimalization on the competition for order flow. For TSE stocks cross-listed on the NYSE/AMEX, spreads decrease by 27% on the TSE and do not change on the NYSE/AMEX. For TSE stocks cross-listed on Nasdaq, spreads decline by 16% and 8% on the TSE and Nasdaq, respectively. However, order flow does not migrate from U.S. markets to the TSE. Our results indicate that the savings in TSE transaction costs do not o⁄set the benefits of trading on the NYSE/AMEX, and that Nasdaq dealers might not operate as eƒciently as perfect competition warrants. ( 1998 Elsevier Science B.V. All rights reserved.

[1]  Charles M. C. Lee.  Market Integration and Price Execution for NYSE-Listed Securities , 1993 .

[2]  A. Kalay,et al.  Market Making with Discrete Prices , 1998 .

[3]  Stephen R. Foerster,et al.  International Listings of Stocks: The Case of Canada and the U.S. , 1993 .

[4]  Paul E. Godek.  Why Nasdaq market makers avoid odd-eighth quotes☆ , 1996 .

[5]  Tarun Chordia,et al.  Market Making, the Tick Size, and Payment-for-Order Flow: Theory and Evidence , 1995 .

[6]  L. Harris.  Does a Large Minimum Price Variation Encourage Order Exposure , 1996 .

[7]  Chris J. Muscarella,et al.  Do institutions receive comparable execution in the NYSE and Nasdaq markets? A transaction study of block trades , 1997 .

[8]  H. Stoll,et al.  Dealer versus auction markets: A paired comparison of execution costs on NASDAQ and the NYSE , 1996 .

[9]  Charles M. C. Lee,et al.  Inferring Trade Direction from Intraday Data , 1991 .

[10]  Michael J. Barclay.  Bid-ask spreads and the avoidance of odd-eighth quotes on Nasdaq: An examination of exchange listings , 1997 .

[11]  Hyuk Choe,et al.  Does the Specialist Matter? Differential Execution Costs and Intersecurity Subsidization on the New York Stock Exchange , 1997 .

[12]  Hendrik Bessembinder.  The Degree of Price Resolution and Equity Trading Costs , 1996 .

[13]  L. Harris.  Minimum Price Variations, Discrete Bid-Ask Spreads, and Quotation Sizes , 1994 .

[14]  C. Cao,et al.  Tick Size, Spread, and Volume , 1996 .

[15]  Hidden Limit Orders on the NYSE , 1995 .

[16]  P. Schultz,et al.  Why Did NASDAQ Market Makers Stop Avoiding Odd‐Eighth Quotes? , 1994 .

[17]  E. A. Dyl,et al.  MARKET STRUCTURE AND REPORTED TRADING VOLUME: NASDAQ VERSUS THE NYSE , 1997 .

[18]  Jeffrey M. Bacidore.  The Impact of Decimalization on Market Quality: An Empirical Investigation of the Toronto Stock Exchange , 1996 .

[19]  P. Schultz,et al.  Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes? , 1994 .

[20]  D. Weaver.  Decimalization And Market Quality , 1996 .

[21]  Eugene Kandel,et al.  NASDAQ Market Structure and Spread Patterns , 1997 .