Skip to main content
SpringerLink
Log in

The Effect of Automated Trading on Market Quality: Evidence from the New York Stock Exchange

  • Conference paper
Enterprise Applications and Services in the Finance Industry (FinanceCom 2008)

Part of the book series: Lecture Notes in Business Information Processing ((LNBIP,volume 23))

  • 496 Accesses

Abstract

From the end of 2006 until the beginning of 2007 the NYSE introduced the NYSE Hybrid Market on a rolling basis. The NYSE Hybrid Market significantly changed the NYSE’s market model and supports automated execution for almost unlimited order sizes and different order types. The introduction of the Hybrid Market was driven by fundamental changes in the securities trading industry over the last years. This paper analyzes the effect of the NYSE Hybrid Market on market quality through analyzing different spread measures and price impact. Results show that the introduction of the Hybrid Market reduced trading costs and improved execution quality at the NYSE.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 39.99
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 54.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Abrokwah, K., Sofianos, G.: Execution quality at the new, fast nyse. Journal of Trading (2008) (Winter, forthcoming)

    Google Scholar 

  2. Arellano, M.: Computing robust standard errors for within-groups estimators. Oxford Bulletin of Economics and Statistics 49(4), 431–434 (1987)

    Article  Google Scholar 

  3. Barclay, M.J., Litzenberger, R.H., Warner, J.B.: Private information, trading volume, and stock-return variances. The Review of Financial Studies 3(2), 233–253 (1990)

    Article  Google Scholar 

  4. Bessembinder, H.: Issues in assessing trade execution costs. Journal of Financial Markets (6), 233–257 (2003)

    Google Scholar 

  5. Bessembinder, H., Kaufman, H.M.: A comparison of trade execution costs for nyse and nasdaq-listed stocks. The Journal of Financial and Quantitative Analysis 32(3), 287–310 (1997)

    Article  Google Scholar 

  6. Bessembinder, H., Kaufman, H.M.: A cross-exchange comparison of execution costs and information flow for nyse-listed stocks. Journal of Financial Economics 46, 293–319 (1997)

    Article  Google Scholar 

  7. Boehmer, E.: Dimensions of execution quality: Recent evidence for US equity markets. Journal of Financial Economics 78, 553–582 (2005)

    Article  Google Scholar 

  8. Boehmer, E., Broussard, J.P., Kallunki, J.P.: Using SAS in Financial Research. SAS Institute Inc., Cary (2002)

    Google Scholar 

  9. Boehmer, E., Saar, G., Yu, L.: Lifting the veil: An analysis of pre-trade transparency at the NYSE. The Journal of Finance 62(2), 783–815 (2005)

    Article  Google Scholar 

  10. Domowitz, I., Steil, B.: Automation, trading costs, and the structure of the securities trading industry. Brookings-Wharton Papers on Financial Services, pp. 33–82 (1999)

    Google Scholar 

  11. Easley, D., Hendershott, T., Ramadorai, T.: The price of latency. Working Paper, Cornell University, University of California at Berkley, and University of Oxford and CEPR (Version 21 May 2008), http://ssrn.com/abstract=961041 (accessed July 17, 2008)

  12. Easley, D., O’Hara, M.: Price, trade size, and information in securities markets. Journal of Financial Economics 19, 69–90 (1987)

    Article  Google Scholar 

  13. Gajewski, J.F., Gresse, C.: Centralised order books versus hybrid order books:a paired comparison of trading costs on nsc (euronext paris) and sets (london stock exchange). Journal of Finance and Banking 31, 2906–2924 (2007)

    Article  Google Scholar 

  14. Glosten, L.R., Milgrom, P.R.: Bid, ask and transaction prices in a specialist market with heterogeneously informed traders. Journal of Financial Economics 14, 71–100 (1985)

    Article  Google Scholar 

  15. Hasbrouck, J.: Measuring the information content of stock trades. The Journal of Finance 46(1), 179–207 (1991)

    Article  Google Scholar 

  16. Hendershott, T., Jones, C.M., Menkveld, A.J.: Does algorithmic trading improve liquidity. Working Paper, Haas School of Business University of California at Berkeley, Graduate School of Business Columbia University, and VU University Amsterdam Tinbergen Institute (Version 26 April 2008), http://ssrn.com/abstract=1100635 (accessed May 10, 2008)

  17. Hendershott, T., Moulton, P.C.: The shrinking new york stock exchange floor and the hybrid market, Working Paper, Haas School of Business and Fordham Graduate School of Business (2007), http://www.bnet.fordham.edu/pmoulton/Hybrid_20070904.pdf (accessed May 20, 2008)

  18. Hendershott, T., Moulton, P.C.: Speed and stock market quality: The nyse’s hybrid. Working Paper, Haas School of Business and Fordham Graduate School of Business (2008), http://ssrn.com/abstract=1159773 (accessed October 5, 2008)

  19. Jain, P.K.: Financial market design and the equity premium: Electronic versus floor trading. The Journal of Finance 9(6), 2955–2985 (2005)

    Article  Google Scholar 

  20. Kinney, C.: Electronic and floor-based trading: The NYSE hybrid market. In: Schwartz, R.A., Byrne, J.A., Colaninno, A. (eds.) Electronic and Floor-Based Trading. Zicklin School of Business Financial Markets Series, ch. 7, pp. 111–120. Springer, Boston (2006)

    Chapter  Google Scholar 

  21. Kyle, A.S.: Continuous auctions and insider trading. Econometrica 53(6), 1315–1336 (1985)

    Article  Google Scholar 

  22. Lee, C.M.C., Ready, M.J.: Inferring trade direction from intraday data. The Journal of Finance 46(2), 733–746 (1991)

    Article  Google Scholar 

  23. Madhavan, A., Sofianos, G.: An empirical analysis of nyse specialist trading. Journal of Financial Economics 48, 189–210 (1998)

    Article  Google Scholar 

  24. NYSE: Hybrid market training program (2006), http://www.nyse.com/pdfs/hm_booklet.pdf (accessed May 21, 2008)

  25. NYSE: NYSE hybrid market FAQ (2006), http://www.nyse.com/pdfs/hybridfaqs.pdf (accessed May 21, 2008)

  26. SEC: Release No. 34-51808 (June 9, 2005): Regulation NMS. U.S. Securities and Exchange Commission (2005)

    Google Scholar 

  27. SEC: Release No. 34-53539 (March 22, 2006): Order Approving Proposed Rule Change and Amendment Nos. 1, 2, 3, and 5 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment Nos. 6, 7, and 8 to the Proposed Rule Change to Establish the Hybrid Market. U.S. Securities and Exchange Commission (2006)

    Google Scholar 

  28. Sofianos, G., Werner, I.M.: The trades of nyse floor brokers. Journal of Financial Markets 3, 139–176 (2000)

    Article  Google Scholar 

  29. Venkataraman, K.: Automated versus floor trading: An analysis of execution costs on the paris and new york exchanges. The Journal of Finance 56(4), 1445–1485 (2001)

    Article  Google Scholar 

  30. Weber, B.: Transformation of trading at the new york stock exchange, 1980-2007. Working Paper, London Business School, Version 9 April 2008. Journal of Management Information Systems (submitted, 2008)

    Google Scholar 

  31. Werner, I.M.: Nyse order flow, spreads, and information. Journal of Financial Markets 6, 309–335 (2003)

    Article  Google Scholar 

  32. White, H.: A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica 48(4), 817–838 (1980)

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Institute of Information Systems and Management (IISM), University of Karlsruhe, Englerstr. 14, 76131, Karlsruhe, Germany

    Andreas Storkenmaier & Ryan Riordan

Authors
  1. Andreas Storkenmaier
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Ryan Riordan
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. Brandenburg University of Technology, 03013, Cottbus, Germany

    Dennis Kundisch

  2. University of Mannheim, 68131, Mannheim, Germany

    Daniel J. Veit

  3. University of Bamberg, 96045, Bamberg, Germany

    Tim Weitzel

  4. Lehrstuhl für Informationsbetriebswirtschaftslehre, Universiät Karlsruhe (TH), Englerstr. 14, 76131, Karlsruhe, Germany

    Christof Weinhardt

Rights and permissions

Reprints and permissions

Copyright information

© 2009 Springer-Verlag Berlin Heidelberg

About this paper

Cite this paper

Storkenmaier, A., Riordan, R. (2009). The Effect of Automated Trading on Market Quality: Evidence from the New York Stock Exchange. In: Kundisch, D., Veit, D.J., Weitzel, T., Weinhardt, C. (eds) Enterprise Applications and Services in the Finance Industry. FinanceCom 2008. Lecture Notes in Business Information Processing, vol 23. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-01197-9_2

Download citation

  • DOI: https://doi.org/10.1007/978-3-642-01197-9_2

  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-642-01196-2

  • Online ISBN: 978-3-642-01197-9

  • eBook Packages: Computer ScienceComputer Science (R0)

Publish with us

Policies and ethics

Search

Navigation