Abstract:
We model two methods of executing segregated retail orders: broker’s routing, whereby brokers allocate orders using market maker’s overall performance, and order- by-order auctions, where market makers bid on individual orders, a recent SEC proposal. Order-by-order auctions improve market maker allocative efficiency, but face a winner’s curse reducing retail investor welfare, particularly when liquidity is limited. Additional market participants competing for retail orders fail to improve total efficiency and investor welfare when entrants possess information superior to incumbent wholesalers. Existing Retail Liquidity Programs empirically suggest order-by-order auctions would attract few bidders in less liquid stocks and low-liquidity periods.

Bio:
Thomas Ernst is an assistant professor of finance at the Smith School of Business at the University of Maryland. His primary research interest is asset pricing, with a focus on market microstructure and price discovery. He received his PhD in finance from MIT and his BS in economics and mathematics from the University of Wisconsin Madison.

Zoom:

https://us02web.zoom.us/j/86114707362?pwd=ZDFWcnRkbTgzWTJiekhEcGxaa0dHZz09
ID: 861 1470 7362
PW: 148105