Journal of Banking & Finance Vol. 154 2023
Do stock exchanges specialize? Evidence from the New Jersey transaction tax proposal
Abstract
Exchange ownership in the U.S. is often characterized as excessively concentrated. This leads to a concern that such concentration may prevent peripheral exchanges from mitigating adverse selection costs associated with low-latency arbitrage. We examine this concern using low-latency connectivity disruptions caused by temporary relocations of two markets, NYSE Chicago and Nasdaq PSX, in response to a transaction bill proposal. Although both exchanges had previously announced measures to curb low-latency trading, the connectivity disruptions cause a substantial reduction in adverse selection. These results suggest that peripheral markets have little incentive to implement measures restricting low-latency arbitrage.
- DOI
- 10.1016/j.jbankfin.2023.106942
- Volume
- 154
- Pages
- 106942
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib