Review of Quantitative Finance and Accounting

, Volume 26, Issue 2, pp 87–103

Effect of the Actual Size Rule Under Market Stress

  • David C. Porter
  • Yusif Simaan
  • Daniel G. Weaver
  • David K. Whitcomb
Article

DOI: 10.1007/s11156-006-7211-2

Cite this article as:
Porter, D.C., Simaan, Y., Weaver, D.G. et al. Rev Quant Finan Acc (2006) 26: 87. doi:10.1007/s11156-006-7211-2

Abstract

We examine the introduction of the Actual Size Rule (ASR) on Nasdaq during a control period and a period of market stress. We find that market makers in both ASR and Non-ASR stocks reduce quotation sizes and widen spreads when under stress but the reduction of quotation size and increase in spread width are significantly larger for ASR stocks. We also examine October 27, when the market was under the most severe stress. We find ASR and Non-ASR stocks have similar reductions in time-weighted quotation ask size when compared with the control sample but ASR bid sizes are about 10% smaller than Non-ASR bid sizes. Our findings imply that the ASR rule may significantly reduce market quality under times of market stress.

Key Words

NASDAQ actual size rule market stress 

Copyright information

© Springer Science + Business Media, Inc. 2006

Authors and Affiliations

  • David C. Porter
    • 1
  • Yusif Simaan
    • 2
  • Daniel G. Weaver
    • 3
  • David K. Whitcomb
    • 4
    • 5
  1. 1.College of Business and Economics, Department of Finance and Business LawUniversity of Wisconsin-WhitewaterWhitewater
  2. 2.Graduate School of Business AdministrationFordham University at Lincoln CenterNew York
  3. 3.Rutgers Business SchoolRutgers UniversityPiscataway
  4. 4.Automated Trading Desk, LLCMt. Pleasant
  5. 5.Professor Emeritus, Rutgers Business SchoolRutgers UniversityRutgers

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