Designated market makers still matter: Evidence from two natural experiments

Adam D. Clark-Joseph, Mao Ye and Chao Zi

Journal of Financial Economics, 2017, vol. 126, issue 3, 652-667

Abstract: Independent technological glitches forced two separate trading halts on different U.S. exchanges during the week of July 6, 2015. During each halt, all other exchanges remained open. We exploit exogenous variation provided by this unprecedented coincidence, in conjunction with a proprietary data set, to identify the causal impact of Designated Market Maker (DMM) participation on liquidity. When the voluntary liquidity providers on one exchange were removed, liquidity remained unchanged; when DMMs were removed, liquidity decreased market-wide. We find evidence consistent with the idea that these DMMs, despite facing only mild formal obligations, significantly improve liquidity in the modern electronic marketplace.

Keywords: Market makers; HFTs; Liquidity; Obligations; Trading halt (search for similar items in EconPapers)
JEL-codes: G14 G24 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:126:y:2017:i:3:p:652-667

DOI: 10.1016/j.jfineco.2017.09.001

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