Odd-eight avoidance as a defense against SOES bandits

Article Abstract:

The behavior of Nasdaq momentum traders or SOES bandits have been modelled. Nasdaq created the Small Order Execution System (SOES) to lower trading costs by automating the execution of small market traders. The bandits are traders who monitor market makers' quotes in order to take advantage of market trends. When they see an emerging trend, they transact with a trade who they believe is unaware of the trend. They will then liquidate their position within minutes or seconds. They attain their advantage over market makers through constant monitoring of a stock.

Misc Stock Exchanges, Models, Stock exchanges, Market makers (Securities trading), Program trading (Securities)

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Limit orders and the alleged Nasdaq collusion

Article Abstract:

Past studies comparing the distribution of spreads in the New York Stock Exchange (NYSE) and the Nasdaq such as Goldstein (1993), Christie and Huang (1994), Christie and Schultz (1994), and Barclay (1995) support the notion of the occurrence of collusion in setting spreads. The two exchanges utilize different methods in handling limit orders which may explain the larger amount of spreads in the Nasdaq when compared to the NYSE. The proof from the previous studies about the possibility of collusion is exaggerated.

Insider trading in securities, Insider trading (Securities)

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Nasdaq market structure and spread patterns

Article Abstract:

A model was created to account for the characteristics of the Nasdaq market, such as the fixed minimum tick size or prize increment and the absence of limit orders, which fall outside the traditional Bertrand model of price competition. The model accounts for the odd-eight forbearance in Christie and Schultz (1994). Results from analysis of Nasdaq trading reveal that stock market traders may employ odd-tick avoidance as a method of increasing price spreads.

Stock-exchange, Securities listing

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