Payments for order flow on Nasdaq

Eugene Kandel, Leslie M. Marx

Research output: Contribution to journalArticlepeer-review

30 Scopus citations


We present a model of Nasdaq that includes the two ways in which marketmakers compete for order flow: quotes and direct payments. Brokers in our model can execute small trades through a computerized system, preferencing arrangements with marketmakers, or vertical integration into market making. The comparative statics in our model differ from those of the traditional model of dealer markets, which does not capture important institutional features of Nasdaq. We also show that the empirical evidence is inconsistent with the traditional model, which suggests that preferencing and vertical integration are important components in understanding Nasdaq.

Original languageAmerican English
Pages (from-to)35-66
Number of pages32
JournalJournal of Finance
Issue number1
StatePublished - Feb 1999


Dive into the research topics of 'Payments for order flow on Nasdaq'. Together they form a unique fingerprint.

Cite this