Payments for order flow on Nasdaq

Published

Journal Article

We present a model of Nasdaq that includes the two ways in which marketmakers compete for order flow: quotes and direct payments. Brokers in our model can execute small trades through a computerized system, preferencing arrangements with marketmakers, or vertical integration into market making. The comparative statics in our model differ from those of the traditional model of dealer markets, which does not capture important institutional features of Nasdaq. We also show that the empirical evidence is inconsistent with the traditional model, which suggests that preferencing and vertical integration are important components in understanding Nasdaq.

Full Text

Duke Authors

Cited Authors

  • Kandel, E; Marx, LM

Published Date

  • January 1, 1999

Published In

Volume / Issue

  • 54 / 1

Start / End Page

  • 35 - 66

International Standard Serial Number (ISSN)

  • 0022-1082

Digital Object Identifier (DOI)

  • 10.1111/0022-1082.00098

Citation Source

  • Scopus