Market-Making in the Third Market for NYSE-Listed Securities

Lynn Doran

The Financial Review, 1999, vol. 34, issue 4, 29-54

Abstract: This paper empirically examines market making in the third market for common stocks that are listed on the NYSE. Although the same non-NYSE members make a market on both types of stocks, bid-ask spreads are wider on Rule 19c-3 stocks than on Rule 390 stocks. Market-making by NYSE members is minimal and spreads posted by NYSE members are wider than those posted on identical stocks by non-NYSE members. This suggests that NYSE members do not compete on the basis of spread but use methods such as price matching and the internalization of orders to attract order flow to the third market. Copyright 1999 by MIT Press.

Date: 1999
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