The Effect of Automated Trading on Market Quality: Evidence from the New York Stock Exchange

From the end of 2006 until the beginning of 2007 the NYSE introduced the NYSE Hybrid Market on a rolling basis. The NYSE Hybrid Market significantly changed the NYSE's market model and supports automated execution for almost unlimited order sizes and different order types. The introduction of the Hybrid Market was driven by fundamental changes in the securities trading industry over the last years. This paper analyzes the effect of the NYSE Hybrid Market on market quality through analyzing different spread measures and price impact. Results show that the introduction of the Hybrid Market reduced trading costs and improved execution quality at the NYSE.