Preferenced Trading, Quote Competition, and Market Quality: Evidence from Decimalization on the NYSE

摘要

We examine the impact of decimalization on preferenced trading and whether the reduction in preferencing activity contributes significantly to an observed improvement in quote competition and market quality on the NYSE. We find a 20% decline in preferenced trading activity for the largest NYSE stocks and the decline contributes significantly to the improvement in quote competition and market quality on the NYSE. The evidence suggests that preferenced trading damages quote competition and market quality, and the reduction in preferenced trading around decimalization is large enough to have significant impacts on market quality.