Paying for market liquidity : competition and incentives

Mario Bellia, Loriana Pelizzon, Marti Subrahmanyam, Jun Uno, Darya Yuferova

Do competition and incentives offered to designated market makers (DMMs) improve market liquidity? Using data from NYSE Euronext Paris, we show that an exogenous increase in competition among DMMs leads to a significant decrease in quoted and effective spreads, mainly through a reduction in adverse selection costs. In contrast, changes in incentives, through small changes in rebates and requirements for DMMs, do not have any tangible effect on market liquidity. Our results are of relevance for designing optimal contracts between exchanges and DMMs and for regulatory market oversight.

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Year of publication:	[2019]
Authors:	Bellia, Mario ; Pelizzon, Loriana ; Subrahmanyam, Marti G. ; Uno, Jun ; Yuferova, Darya
Publisher:	Frankfurt am Main : SAFE, Sustainable Architecture for Finance in Europe
Subject:	High-Frequency Trading (HFT) \| Designated Market Makers (DMMs) Market Making \| Adverse Selection \| Liquidity Provision \| Theorie \| Theory \| Adverse Selektion \| Adverse selection \| Liquidität \| Liquidity \| Börsenmakler \| Stockbrokers \| Wertpapierhandel \| Securities trading \| Elektronisches Handelssystem \| Electronic trading \| Marktliquidität \| Market liquidity \| Marktmechanismus \| Market mechanism \| Geld-Brief-Spanne \| Bid-ask spread \| Finanzmarkt \| Financial market

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Extent:	1 Online-Ressource (circa 60 Seiten) Illustrationen
Series:	SAFE working paper. - Frankfurt am Main : SAFE, ZDB-ID 2745463-0. - Vol. no. 247
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Graue Literatur ; Non-commercial literature ; Arbeitspapier ; Working Paper
Language:	English
Notes:	Datei gelöscht auf Wunsch der herausgebenden Institution
Other identifiers:	hdl:10419/194575 [Handle]
Classification:	G12 - Asset Pricing ; G14 - Information and Market Efficiency; Event Studies
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10011987269