Quotes, Order Flow, and Price Discovery




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    • Blume is from the Wharton School, University of Pennsylvania at Boulder, and Goldstein is from the Graduate School of Business Administration, University of Colorado. We thank Dhaneesh Kumbhani, Kashif Hussain, and Anuj Malhotra for their excellent research assistance. We also thank Charles Black, James Cochrane, Gene Finn, Craig MacKinlay, Ananth Madhavan, Bernard Madoff, Peter Madoff, Edward Nelling, Mark Roomans, James Shapiro, and two referees for their valuable comments and help. Goldstein gratefully acknowledges financial support from Geewax, Terker & Company and the Rodney L. White Center for Financial Research. The contents of this article are the sole responsibility of the authors.


The goal of this article is to examine the impact of 1975 Congressional mandate to integrate the trading of NYSE-listed stocks. The conclusions are: most of the time, the New York Stock Exchange (NYSE) quote matches or determines the best displayed quote, and the NYSE is the most frequent initiator of quote changes. Non-NYSE markets attract a significant portion of their volume when they are posting inferior bids or offers, indicating they obtain order flow for other reasons, such as “payment for order flow.” Yet, when a non-NYSE market does post a better bid or offer, it does attract additional order flow.