Abstract
This study focuses on innovations in order execution processes in competitive option markets. More specifically, it examines the impact of new competition arising from the Price Improvement Process introduced by the Boston Options Exchange on options spreads and the quality of order execution. Using an original data set, the paper shows that the marginal price improvement averages 1.49% of the option price quoted immediately before the transaction, and that this improvement varies according to order size and market liquidity. Moreover, price effects appear to be temporary as quoted spreads immediately after PIP related transactions revert to their previous higher level.
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