Market Integration and Price Execution for NYSE-Listed Securities

For New York Stock Exchange (NYSE) listed securities, the price execution of seemingly comparable orders differs systematically by location. In general, executions at the Cincinnati, Midwest, and New York stock exchanges are most favorable to trade initiators, while executions at the National Association of Security Dealers (NASD) are least favorable. These intermarket price differences depend on trade size, with the smallest trades exhibiting the biggest per share price difference. Collectively, these results raise questions about the adequacy of the existing intermarket quote system (ITS), the broker's fiduciary responsibility for “best execution,” and the propriety of order flow inducements.     

Differential and More Favorable Treatment of Developing Countries and the International Trading System

This article argues that "differential and more favourable treatment"of developing countries in the General Agreement on Tariffsand Trade (GATT) has been a logical consequence of their owninward-looking policies and the GATT's implicit mercantilism,the latter implying that liberalization, being costly, shouldnot be demanded of relatively poor countries. Time has, however,reduced both the appeal of the protectionist model of developmentand the willingness of developed countries to accord differentialtreatment. The upshot has been pressure on more advanced developingcountries to "graduate" and a growing literature recommendingfuller and more equal participation of developing countriesin the GATT. The case for fuller and more equal participationis not self-evident. It needs to be assessed on its merits interms of the prospects for improved market access abroad andmore efficient policy at home. The analysis indicates that thepotential benefits should not be oversold. On balance, however,the most advanced developing countries would probably gain fromactive and more equal participation in both GATT and the multilateraltrade negotiations while the remaining developing countrieswould benefit from graduation by the more advanced.     

Aggregate liquidity shortages, idiosyncratic liquidity smoothing and banking regulation

This paper develops a model of banking fragility driven by aggregate liquidity shortages. Inefficiencies arise from a failure of the interbank market to smooth the available liquidity in such a shortage. We find that a standard lender of last resort policy is ineffective in restoring efficiency as it leads to offsetting changes in the banks’ supply of liquidity. In contrast, subsidizing the purchase of assets from troubled banks increases welfare by improving the banks’ liquidity holdings. The first best, however, is achieved by redistributing existing liquidity from healthy to troubled banks in a crisis.     

Final Offer Arbitration: Better Theory Than Practice

The theory of final offer arbitration promises more than its actual performance delivers, based on admittedly limited experience. There is no showing that fewer negotiations reach impasse than would occur under conventional arbitration. There is evidence, however, that final offer arbitration does tend to produce awards less equitable than warranted by the positions and strengths of the parties, particularly when there are multiple issues at impasse and when arbitrators may select only one overall package or another. This tendency is built-in to the process, since the whole point of final offer arbitration is deterrence, with little or no concern for getting a good settlement through arbitration. “Bad” awards cannot fail to generate irritation and to have a corrosive effect on responsible contract administration. It is possible that such awards, and their effects, will be accepted as the necessary price of a final offer selection system. What seems more likely, however, is that the system will be modified along the lines of those in Eugene and Michigan. Those modifications can be expected to have two effects. First, they will make it more likely that the parties will be able to reach their own agreement by encouraging mediation and further negotiations, even after arbitration has been invoked. Second, they will increase the possibility of an acceptable arbitrated settlement by allowing the arbitrator greater flexibility in making an award. By doing these things, however, the deterrent effect of final offer selection will be substantially weakened, and what will be left will be a useful form of mediation-arbitration but not a substitute for the strike which contains an equivalent incentive to negotiate.