Financial Regulation, Clientele Segmentation, and Stock Exchange Order Types

Sida Li, Mao Ye and Miles Zheng

No 28515, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Financial regulations and clientele segmentation explain the proliferation of order types on stock exchanges. Plain market and limit orders lose money, indicating that informed traders use complex orders. Fifty-seven percent of trading volume comes from non-routable orders, which are designed to bypass Reg NMS. Because Reg NMS routes orders based on the best gross prices, it often routes orders to worse net prices after adjusting for fees. Non-routable orders win speed races to capture short-term profits, but all order types containing long-term information are routable. An order type that complies with share repurchase regulations earns a 30-day return of 7%.

JEL-codes: G14 G18 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-cwa
Note: AP
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Citations: View citations in EconPapers (2)

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