QUOTES, ORDER FLOW, AND PRICE DISCOVERY

The goal of this article is to examine the impact of 1975 Congressiona l mandate to integrate the trading of NYSE-listed stocks. The conclusi ons are: most of the time, the New York Stock Exchange (NYSE) quote ma tches or determines the best displayed quote, and the NYSE is the most frequent initiator of quote changes. NonNYSE markets attract a signif icant portion of their volume when they are posting inferior bids or o ffers, indicating they obtain order now for other reasons, such as ''p ayment for order flow.'' Yet, when a non-NYSE market does post a bette r bid or offer, it does attract additional order flow.