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Who Benefits from an Open Limit-Order Book?

Shmuel Baruch
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Shmuel Baruch: David Eccles School of Business, University of Utah

The Journal of Business, 2005, vol. 78, issue 4, 1267-1306

Abstract: The NYSE opened the limit-order book to off-exchange traders during trading hours. We address the welfare implications of this change in market structure. We model a market similar to the auction that the exchange uses to open the trading day. We consider two different environments. In the first, only the specialist sees the limit-order book, while in the second the information in the book is available to all traders. We compare equilibria and find that traders who demand liquidity are better off when the book is open while liquidity suppliers are better off when the book is closed.

Date: 2005
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Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:4:p:1267-1306