Information disclosure and market quality: The effect of SEC rule 605 on trading costs

Xin Zhao, Kee H. Chung

Research output: Contribution to journalArticlepeer-review

18 Scopus citations


The Securities and Exchange Commission (SEC) adopted Rule 605 (formerly Rule 11Ac15) on November 15, 2000. The Rule requires market centers to make monthly public disclosure of execution quality. The Rule is intended to achieve a more competitive and efficient national market system by increasing the visibility of execution quality. The effective and quoted spreads for our study sample of NYSE, AMEX, and NASDAQ stocks declined significantly after implementation of the Rule. The decline cannot be attributed to a secular trend in spreads, concurrent changes in stock attributes, or the effect of decimal pricing. Although the quoted depth of NYSE stocks also declined, overall market quality is higher after implementation of the Rule. Based on these results, we conclude that the SECs goal to improve execution quality through more transparent markets has been achieved. COPYRIGHT 2007, SCHOOL OF BUSINESS ADMINISTRATION, UNIVERSITY OF WASHINGTON.

Original languageEnglish (US)
Pages (from-to)657-682
Number of pages26
JournalJournal of Financial and Quantitative Analysis
Issue number3
StatePublished - Sep 2007

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics


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