Electronic Theses and Dissertations

Date of Award


Document Type


Degree Name

Ph.D. in Business Administration

First Advisor

Robert A. Van Ness

Second Advisor

Mark Van Boening

Third Advisor

Kathleen Fuller

Relational Format



This dissertation consists of three essays on quote stuffing, dealer provided liquidity, and stub quoting. The first essay examines the impact that intense episodic spikes in quoting activity (frequently referred to as "quote stuffing") has on market conditions. We find that quote stuffing is pervasive with several hundred events occurring each trading day and that over 74% of US exchange traded securities experience at least one episode during 2010. We find that during periods of intense quoting activity stocks experience decreased liquidity, higher trading cost, and increased short term volatility. In the second we examine the role of the NASDAQ market marker over time. Specifically, we study the liquidity providing behavior of NASDAQ market markers in the trading environment in 2010 compared to 2004. We examine the frequency with which market makers are at the inside quote, the market and stock specific factors that influence market maker participation, changes in the number of market makers over time, and the relation between market maker participation and intraday bid-ask spread patterns. We find that the role of NASDAQ market makers declines over time. In 2004, the percentage of the trading day that market makers quote at the inside bid (ask) is 60% (62%) compared to 2010 when NASDAQ dealers quote at the inside bid (ask) just 12% (11%). The number of market makers declines. We also find evidence that the influence market makers have on intraday variations in the bid-ask declines over time. Finally in the third essay, we examine the liquidity providing behavior of NASDAQ market makers surrounding two periods of changing dealer obligation. The first period is the relaxation of Rule 4613 in November of 2007 which required NASDAQ market makers to place two-sided quotes that must be "reasonably related" to the current best bid and offer. This rule change permitted NASDAQ market makers to post quotes far away from the prevailing market (frequently referred to as a "Stub Quote"). The second is the Securities and Exchange Commission ban on stub quoting in December 2010 which requires that market makers quote within a predefined distance from market prices. We find evidence in both the 2007 and 2010 rule change periods that placing restrictions on stub quoting alters market makers liquidity providing behavior. Stub quote restrictions increase the time that market makers quote at the NBBO. We also find evidence that stub quoting restrictions increase the percent of daily volume executed by market makers. However, we find little evidence that stub quoting rules impact the participation of market makers during days with excessive volatility.



Included in

Finance Commons



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