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Competition on the Nasdaq and the Impact of Recent Market Reforms

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  • James P. Weston

Abstract

This paper examines the effect of recent market reforms on the competitive structure of the Nasdaq. Our results show that changes in inventory and information costs cannot explain the post‐reform decrease in bid‐ask spreads. We interpret this as evidence that the reforms have reduced Nasdaq dealers' rents. Additionally, we find that the difference between NYSE and Nasdaq spreads have been greatly diminished with the new rules. Further, the reforms have resulted in an exit, ceteris paribus, from the industry for market making. Overall, our results provide strong evidence that the reforms have improved competition on the Nasdaq.

Suggested Citation

  • James P. Weston, 2000. "Competition on the Nasdaq and the Impact of Recent Market Reforms," Journal of Finance, American Finance Association, vol. 55(6), pages 2565-2598, December.
    • Handle: RePEc:bla:jfinan:v:55:y:2000:i:6:p:2565-2598
    DOI: 10.1111/0022-1082.00300
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