RT Journal Article
SR Electronic
T1 The Cost of the D-Quote
JF The Journal of Trading
FD Institutional Investor Journals
SP 39
OP 42
DO 10.3905/jot.2014.9.2.039
VO 9
IS 2
A1 Jeff Bacidore
A1 Ben Polidore
A1 Wenjie Xu
YR 2014
UL https://pm-research.com/content/9/2/39.abstract
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.TOPICS: Security analysis and valuation, exchanges/markets/clearinghouses