PT  - JOURNAL ARTICLE
AU  - Bacidore, Jeff
AU  - Polidore, Ben
AU  - Xu, Wenjie
TI  - The Cost of the D-Quote
AID  - 10.3905/jot.2014.9.2.039
DP  - 2014 Mar 31
TA  - The Journal of Trading
PG  - 39--42
VI  - 9
IP  - 2
4099  - http://jot.iijournals.com/content/9/2/39.short
4100  - http://jot.iijournals.com/content/9/2/39.full
AB  - Traders commonly use market-on-close (MOC) or limit-on-close (LOC) orders to participate in the NYSE closing auction. The d-Quote is an alternative mechanism. Unlike MOC/LOC orders, which must be submitted prior to 3:45 p.m., unless offsetting a Regulatory Imbalance, D-Quotes can be submitted or modified until 3:59:50 p.m., regardless of the current imbalance. Given the greater flexibility of d-Quotes, why don’t traders always use them when participating in the close?In this article, we discuss the cost and benefits of d-Quotes. The main benefit of d-Quotes is flexibility: D-Quotes can be submitted later than MOC/LOC orders, have no imbalance-related restrictions, and can be canceled until 3:59:50 p.m. The downside of d-Quotes is their tendency to be more impactful than similarly sided MOC orders, which we document empirically. Also, d-quotes involve additional operational risk due to their manual nature. Therefore, while d-Quotes may be useful in certain circumstances, their incremental flexibility comes at the cost of greater price impact and additional operational risk.