Do stock exchanges specialize? Evidence from the New Jersey transaction tax proposal
Abstract
Exchange ownership in the U.S. is often characterized as excessively concentrated. This leads to a concern that such concentration may prevent peripheral exchanges from mitigating adverse selection costs associated with low-latency arbitrage. We examine this concern using low-latency connectivity disruptions caused by temporary relocations of two markets, NYSE Chicago and Nasdaq PSX, in response to a transaction bill proposal. Although both exchanges had previously announced measures to curb low-latency trading, the connectivity disruptions cause a substantial reduction in adverse selection. These results suggest that peripheral markets have little incentive to implement measures restricting low-latency arbitrage.
Publication Title
Journal of Banking and Finance
Recommended Citation
Irtisam, R., & Sokolov, K. (2023). Do stock exchanges specialize? Evidence from the New Jersey transaction tax proposal. Journal of Banking and Finance, 154 https://doi.org/10.1016/j.jbankfin.2023.106942
