Would order-by-order auctions be competitive?
We model two different methods of executing segregated retail orders: broker's routing, whereby brokers allocate orders using market maker's overall performance, and order-by-order auctions, where market makers bid on individual orders, a recent SEC proposal. Order-by-order auctions improv...
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Institutional Knowledge at Singapore Management University
2023
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sg-smu-ink.lkcsb_research-83572024-01-04T05:52:58Z Would order-by-order auctions be competitive? ERNST, Thomas SPATT, Chester SUN, Jian We model two different methods of executing segregated retail orders: broker's routing, whereby brokers allocate orders using market maker's overall performance, and order-by-order auctions, where market makers bid on individual orders, a recent SEC proposal. Order-by-order auctions improve market maker allocative efficiency, but face a winner's curse reducing retail investor welfare, particularly when liquidity is limited. Additional market participants competing for retail orders fail to improve total efficiency and investor welfare when entrants possess information superior to incumbent wholesalers. Existing Retail Liquidity Programs empirically suggest order-by-order auctions would attract few bidders in less liquid stocks and low-liquidity periods. 2023-06-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/lkcsb_research/7358 info:doi/https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4300505 https://ink.library.smu.edu.sg/context/lkcsb_research/article/8357/viewcontent/SSRN_id4300505_Jun_2023.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Order By Order Competition Auctions Retail Trading Routing Brokers PFOF Finance and Financial Management Portfolio and Security Analysis |
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Order By Order Competition Auctions Retail Trading Routing Brokers PFOF Finance and Financial Management Portfolio and Security Analysis |
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Order By Order Competition Auctions Retail Trading Routing Brokers PFOF Finance and Financial Management Portfolio and Security Analysis ERNST, Thomas SPATT, Chester SUN, Jian Would order-by-order auctions be competitive? |
| description |
We model two different methods of executing segregated retail orders: broker's routing, whereby brokers allocate orders using market maker's overall performance, and order-by-order auctions, where market makers bid on individual orders, a recent SEC proposal. Order-by-order auctions improve market maker allocative efficiency, but face a winner's curse reducing retail investor welfare, particularly when liquidity is limited. Additional market participants competing for retail orders fail to improve total efficiency and investor welfare when entrants possess information superior to incumbent wholesalers. Existing Retail Liquidity Programs empirically suggest order-by-order auctions would attract few bidders in less liquid stocks and low-liquidity periods. |
| format |
text |
| author |
ERNST, Thomas SPATT, Chester SUN, Jian |
| author_facet |
ERNST, Thomas SPATT, Chester SUN, Jian |
| author_sort |
ERNST, Thomas |
| title |
Would order-by-order auctions be competitive? |
| title_short |
Would order-by-order auctions be competitive? |
| title_full |
Would order-by-order auctions be competitive? |
| title_fullStr |
Would order-by-order auctions be competitive? |
| title_full_unstemmed |
Would order-by-order auctions be competitive? |
| title_sort |
would order-by-order auctions be competitive? |
| publisher |
Institutional Knowledge at Singapore Management University |
| publishDate |
2023 |
| url |
https://ink.library.smu.edu.sg/lkcsb_research/7358 https://ink.library.smu.edu.sg/context/lkcsb_research/article/8357/viewcontent/SSRN_id4300505_Jun_2023.pdf |
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