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Rev Fin 2003; 16:385-415
© 2003 the Society for Financial Studies

Order Preferencing and Market Quality on U.S. Equity Exchanges

Mark A. Peterson
Southern Illinois University

Erik R. Sirri
Babson College

Address correspondence to: Mark A. Peterson, Department of Finance, Rehn Hall, Southern Illinois University, Carbondale, IL 62901-4626, or e-mail: map1{at}cba.siu.edu.

Abstract

We present a detailed view of market quality in the presence of preferencing arrangements. A unique dataset provides the opportunity to measure trading costs of marketable orders and fill rates and ex post costs of limit orders across trading venues. For market orders, we find the primary exchange provides the lowest execution costs. However, the preferencing exchanges are no worse than, and in most cases better than, the nonpreferencing regional exchanges. For limit orders, the regionals execute limit orders more frequently than the primary market and with an ex post execution cost that is not very different from the primary market.


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