Quote Competitiveness, 100-Share Quotes, and Decimalization

Existing literature documents a significant post-decimalization decline in inter-market quote competitiveness. We show that this result is due primarily to the decline in 100-share NBBO-matching quotes posted by NASDAQ. Particularly, after decimalization, such quotes decline by more than 90%. At the time, the inter-market trading system (ITS) regards 100-share quotes as meaningless. Such quotes are exempt from the trade-through rule and are generally ignored by ITS participants. We therefore argue that the major decline in quote competitiveness observed by the previous literature is largely nominal, and that decimalization had a much lesser impact on quote competitiveness than previously believed