Business, Management and Accounting
4 years ago

Nasdaq reforms lead to lower trading costs and increased market competition.

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Financial Markets Institutions and Instruments
What Explains the Bid‐Ask Spread Decline after Nasdaq Reforms?
Yan He, Chunchi Wu

Paper Summary

The decrease in bid-ask spreads on Nasdaq after 1997 reforms is mainly due to increased competition and lower trading costs. Informed trading and liquidity costs also play a role. Market-making costs and competition have a significant impact on bid-ask spreads. The reforms led to lower bid-ask spreads on Nasdaq by reducing competition and informed trading and liquidity costs.

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