Effect of the Actual Size Rule Under Market Stress |
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| Authors: | David C Porter Yusif Simaan Daniel G Weaver David K Whitcomb |
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| Institution: | (1) College of Business and Economics, Department of Finance and Business Law, University of Wisconsin-Whitewater, Whitewater, WI, 53190;(2) Graduate School of Business Administration, Fordham University at Lincoln Center, 113 West 60th Street, New York, NY, 10023;(3) Rutgers Business School, Rutgers University, 94 Rockafeller Road, Piscataway, NJ, 08854-8054;(4) Automated Trading Desk, LLC, 11 e-Wall Street, Mt. Pleasant, SC, 29464;(5) Professor Emeritus, Rutgers Business School, Rutgers University, Rutgers |
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| Abstract: | We examine the introduction of the Actual Size Rule (ASR) on Nasdaq during a control period and a period of market stress.
We find that market makers in both ASR and Non-ASR stocks reduce quotation sizes and widen spreads when under stress but the
reduction of quotation size and increase in spread width are significantly larger for ASR stocks. We also examine October
27, when the market was under the most severe stress. We find ASR and Non-ASR stocks have similar reductions in time-weighted
quotation ask size when compared with the control sample but ASR bid sizes are about 10% smaller than Non-ASR bid sizes. Our
findings imply that the ASR rule may significantly reduce market quality under times of market stress.
JEL Classification: 14, G15, G18 |
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| Keywords: | NASDAQ actual size rule market stress |
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