Social and Behavioral Sciences Commons^™

Minimum Quotation Size And Market Quality: Evidence From The Modern Otc Markets, Kemerey Thompson

All Graduate Plan B and other Reports, Spring 1920 to Spring 2023

I examine the effects of a change in the minimum quotation size on liquidity and volatility in the modern over-the-counter (OTC) markets. On November 12, 2012, the Financial Industry Regulatory Agency (FINRA) introduced a pilot program to adjust the minimum quote sizes for securities transactions in the OTC markets. I find that an increase in the minimum quote size decreases OTC market quality as spreads widen and volatility increases. In contrast, I find that a decrease in the minimum quote size improves OTC market quality, but the results are sensitive to the price of the security. These results offer important …