TAILIEUCHUNG - Decimalization and competition among stock markets: Evidence from the Toronto Stock Exchange cross-listed securities

It is clear that Alberta needs legislation to accommodate the important role of depositories in modern securities trading. In 1989 CDS proposed certain amendments to the ABCA for this purpose, based upon similar provisions that were added to the Ontario Business Corporations Act ("OBCA) in 1986. Although these proposed amendments are basically compatible with the current version of UCC Article 8, we have concluded that they are not advisable at this time, and that a reformed, more innovative approach is required. . | ELSEVIER Journal of Financial Markets 1 1998 51 -87 Journal of FINANCIAL MARKETS Decimalization and competition among stock markets Evidence from the Toronto Stock Exchange cross-listed securities Hee-Joon Ahna Charles Q. Caob Hyuk Choec a Faculty of Business City University of Hong Kong Kowloon Hong Kong b Smeal College of Business The Pennsylvania State University University Park USA c College of Business Administration Seoul National University Seoul South Korea Abstract We study the impact of Toronto Stock Exchange TSE decimalization on the competition for order flow. For TSE stocks cross-listed on the NYSE AMEX spreads decrease by 27 on the TSE and do not change on the NYSE AMEX. For TSE stocks cross-listed on Nasdaq spreads decline by 16 and 8 on the TSE and Nasdaq respectively. However order flow does not migrate from . markets to the TSE. Our results indicate that the savings in TSE transaction costs do not offset the benefits of trading on the NYSE AMEX and that Nasdaq dealers might not operate as efficiently as perfect competition warrants. 1998 Elsevier Science . All rights reserved. JEL classification G10 G18 G20 Keywords Cross-listed stocks Fractional and decimal trading systems Tick size Bid-ask spread and depth Competition 1. Introduction On April 15 1996 all Canadian stock exchanges switched from a fractional to a decimal trading system. The change to decimalization was intended to reduce Corresponding author. Tel. 1 814 865 7891 fax 1 814 865 3362 e-mail charles@loki. . 1386-4181 98 1998 Elsevier Science . All rights reserved PII S 1 386-4 1 8 1 97 00002-5 52 . Ahn et al. Journal of Financial Markets 1 1998 51- 87 trading costs and strengthen the competitive position of the Canadian equity markets. As the Toronto Stock Exchange TSE stated When decimal trading begins the Canadian securities industry will gain a critical competitive edge in the world arena. The TSE expects this bold revolutionary step to increase our .

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