Merging Markets


  • Tom Arnold,

    1. Indiana University
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  • Philip Hersch,

    1. Wichita State University
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  • J. Harold Mulherin,

    1. Penn State University
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  • Jeffry Netter

    1. University of Georgia
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    • * The authors are from Indiana University, Wichita State University, Penn State University, and the University of Georgia, respectively. We thank session participants at the 1995 Southern Finance Association meetings, the 1996 Financial Management Association meetings, and the 1997 American Finance Association meetings, and seminar participants at the University of Notre Dame, Penn State University, and Wichita State University, as well as Charles Cao, Laura Field, Gordon Hanka, Larry Harris, Ananth Madhavan, David Malmquist, Robert Jennings, Deon Strickland, and Robert Weiner for helpful comments. We also thank the editor, René Stulz, and an anonymous referee for valuable suggestions.


We study the causes and effects of the competition for order flow by U.S. regional stock exchanges. We trace the origins of competition for order flow to a change in the role of regional exchanges from being venues for listing local securities to being more direct competitors for the order flow of NYSE listings. We study the way regionals competed for order flow, concentrating on a series of stock-exchange mergers that occurred in the midst of this transition of the regional exchanges. The merging exchanges attracted market share and experienced narrower bid-ask spreads.