Can the treatment of limit orders reconcile the differences in trading costs between NYSE and Nasdaq issues?

In this paper, we determine whether each bid (ask) quote reflects the tradi ng interest of the specialist, limit order traders, or both for a sample of NYSE stocks in 1991. We then compare Nasdaq spreads with NYSE spreads that reflect the trading interest of the specialist. Our empirical results show that the average Nasdaq spread is significantly larger than the average NY SE specialist spread. We find that, on average, 49% of the difference betwe en Nasdaq and specialist spreads is due to the differential use of even-eig hth quotes between Nasdaq dealers and NYSE specialists. We also find that t he NYSE specialist spread is significantly larger than the limit order spre ad, although NYSE specialists and limit order traders iu e similar in their use of even-eighth quotes.