RESEARCH

We emphasize and encourage links between academic researchers and practitioners at financial institutions to bring theoretical techniques to bear on realworld issues.

ABSTRACT

ABSTRACT

We develop a model where a public limit order book (PLB) competes with a Sub-Penny Venue, which allows Sub-Penny Trading (SPT). SPT occurs when a trader undercuts orders in the PLB by less than one penny, a practice we call queue-jumping (QJ). QJ is higher for NASDAQ than for NYSE stocks. We confirm the model’s predictions that QJ increases in liquidity and in the tick-to-price ratio. We also find that QJ is associated with improved PLB market quality, especially for large capitalization stocks. Finally, we show that High Frequency Trading is negatively related to QJ.


Sub-penny _and_Queue_Jumping .pdf


AUTHORS

AUTHORS

Sabrina Buti
Rotman School of Management, University of Toronto
Francesco Consonni
Bocconi University
Barbara Rindi
Bocconi University and IGIER
Yuanji Wen
University of Western Australia, Business School
Ingrid M. Werner
Fisher College of Business, Ohio State University
First Version: September, 2013