Paying for market liquidity : competition and incentives
- 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.
| Author: | Mario Bellia, Loriana PelizzonORCiDGND, Marti G. Subrahmanyam, Jun Uno, Darya Yuferova |
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| URN: | urn:nbn:de:hebis:30:3-492420 |
| URL: | https://ssrn.com/abstract=3354400 |
| Parent Title (English): | SAFE working paper series ; No. 247 |
| Series (Serial Number): | SAFE working paper series (247) |
| Publisher: | SAFE |
| Place of publication: | Frankfurt am Main |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2019 |
| Year of first Publication: | 2019 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2019/03/21 |
| Tag: | Adverse Selection; Designated Market Makers (DMMs) Market Making; High-Frequency Trading (HFT); Liquidity Provision |
| Issue: | February 2019 |
| Page Number: | 60 |
| HeBIS-PPN: | 447165690 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
| Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
| Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
