Drs. Jain and Sokolov Article Accepted for Publication in Management Science
MEMPHIS, TN—August 8, 2019. Dr. PK Jain (Interim Chair for the Department of Finance, Insurance and Real Estate) and Dr. Konstantin Sokolov (Assistant Professor, Department of Finance) along with two coauthors wrote the article Unfiltered Market Access and Liquidity: Evidence from the SEC Rule 15c3-5, which is now accepted for publication in Management Science.
In November 2011, the SEC implemented the final provision of Rule 15c3-5 curbing unfiltered market access. The provision mandated that brokers verify their clients' order flow for compliance with credit and capital thresholds before routing to market centers. The authors found that the new checks introduce latency to order flow and force some latency-sensitive strategies out of the market. As a result, liquidity providers are better able to revise their quotes in response to new information, adverse selection declines, and liquidity improves.
Consistent with the notion that the market for liquidity provision is competitive,
results from the research shows the benefit of lower adverse selection is transferred
entirely to liquidity demanders in the form of lower trading costs.
Click below to access the online version of the article in publication.
Chakrabarty, Bidisha and Jain, Pankaj K. and Shkilko, Andriy and Sokolov, Konstantin, Unfiltered Market Access and Liquidity: Evidence from the SEC Rule 15c3-5 (July 30, 2019). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2328231 or http://dx.doi.org/10.2139/ssrn.2328231