Order Flow Distribution, Bid–Ask Spreads, and Liquidity Costs: Merrill Lynch's Decision to Cease Routinely Routing Orders to Regional Stock Exchanges

Abstract We examine the effects of an order cancellation fee on limit order flow and execution quality in the PHLX options market. The cancellation fee on professional order flow effectively reduces the rate at which limit orders are canceled. Whereas the cancellation fee discourages the submission of nonmarketable orders, it encourages the submission of marketable orders. Consequently, nonmarketable order fill rates increase; marketable order fill speeds decrease; and bid-ask spreads widen. We also find slight increases in both dollar volume and market share. (JEL G11, G14, G18) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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Commonality in Liquidity: A Global Perspective

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109009990123 ◽

2009 ◽

Vol 44 (4) ◽

pp. 851-882 ◽

Cited By ~ 132

Author(s):

Paul Brockman ◽

Dennis Y. Chung ◽

Christophe Pérignon

Keyword(s):

Global Perspective ◽

Stock Exchanges ◽

Firm Level ◽

Local Exchange ◽

Depth Data ◽

Macroeconomic Announcements ◽

Bid Ask Spreads ◽

Exchange Level ◽

Comprehensive Study

AbstractWe conduct a comprehensive study of commonality in liquidity using intraday spread and depth data from 47 stock exchanges. We find that firm-level changes in liquidity are significantly influenced by exchange-level changes across most of the world’s stock exchanges. Emerging Asian exchanges have exceptionally strong commonality, while those of Latin America exhibit little if any commonality. After documenting the pervasive role of commonality within individual exchanges, we examine commonality across exchanges. We find evidence of a distinct, global component in bid-ask spreads and depths. Local (exchange-level) sources of commonality represent roughly 39% of the firm’s total commonality in liquidity, while global sources contribute an additional 19%. We also investigate potential sources of exchange-level and global commonality. We show that commonality is driven by both domestic and U.S. macroeconomic announcements.

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Institutional determinants of bid–ask spreads in Caribbean offshore stock exchanges

Research in International Business and Finance ◽

10.1016/j.ribaf.2021.101507 ◽

2021 ◽

pp. 101507

Author(s):

Bruce Hearn

Keyword(s):

Stock Exchanges ◽

Institutional Determinants ◽

Bid Ask Spreads

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To Pay or Be Paid? The Impact of Taker Fees and Order Flow Inducements on Trading Costs in U.S. Options Markets

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109016000582 ◽

2016 ◽

Vol 51 (5) ◽

pp. 1637-1662 ◽

Cited By ~ 6

Author(s):

Robert Battalio ◽

Andriy Shkilko ◽

Robert Van Ness

Keyword(s):

Order Flow ◽

Trading Costs ◽

Options Markets ◽

Prior Literature ◽

Liquidity Cost ◽

Liquidity Costs ◽

The Impact

Consistent with prior literature, we find that average relative effective spreads are higher for venues that pay for order flow (PFOF) than for venues utilizing the maker-taker (MT) model. This relation becomes more nuanced when liquidity fees are incorporated into liquidity cost measures. For the majority of options, PFOF venues offer lower average liquidity costs net of taker fees. Net liquidity costs for the high-priced options, however, are lower for MT venues. Overall, our results suggest that the inclusion of fees and rebates can rationalize the routing of most, but not all, marketable orders to PFOF venues.

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