The reverie became reality for 67 companies that transferred their listings to the NYSE from Nasdaq between 2002 and 2005. The Nasdaq transfer companies saw price volatility in their stocks fall by an average of 34 percent and trading spreads narrow dramatically, according to an update to a study soon to be published in the Journal of Financial Markets, a leading academic journal on securities trading and pricing. 

“The companies that transferred their listings from Nasdaq to the NYSE between 2002 and 2005 have benefited from substantial increases in quality of trading in their stocks,” said NYSE Chief Economist Paul Bennett, who along with NYSE Senior Economist Li Wei authored the study "Market Structure, Fragmentation, and Market Quality."

The study examined intraday stock-price volatility and trading costs before and after the companies transferred their listings. It measured intraday volatility by analyzing how much stock prices fluctuated between price highs and lows every five minutes. When listed on Nasdaq, the 67 companies on average experienced intraday price volatility of 6.68 cents, meaning prices moved within a 6.68-cent range every five minutes. When they switched to the NYSE, the volatility subsided to 4.41 cents, or 34 percent.

Reducing price volatility is crucial for companies eager to lower their cost of capital and grow. Lower volatility also translates into savings for investors, who would otherwise be buying stocks at artificially high prices or selling them at artificially low prices.

The study also looked at three key measures of trading costs: the quoted spread, the effective spread and the realized spread. The quoted spread — the difference between the market’s best bid and best offer, a direct measure of market quality — fell from 7.82 cents on Nasdaq to 4.19 cents on the Big Board. The effective spread, which measures the cost incurred by institutions and individual investors, also fell notably, from an average of 8.74 cents per share to 5.43 cents per share, or 38 percent.

Most startling was the drop in the realized spread, which measures the profit made by trading intermediaries such as dealers, specialists and others who supply liquidity to each market. Financial intermediaries, on average, earned 4.16 cents per share while the stocks were listed on Nasdaq. Their per-share profitability fell to a razor-thin margin of 0.17 cents or 96 percent once the stocks switched to the NYSE.

The study computed the quoted, effective and realized spreads using monthly data provided by the nation’s market centers to the Securities and Exchange Commission as part of the SEC’s Execution-Quality Disclosure Rule, Rule 11 Ac1-5 (or Dash 5 rule).

The findings are consistent with earlier studies conducted by the Exchange. In an analysis of 51 companies that switched to the NYSE from Nasdaq in 2002 and 2003, the NYSE calculated an average 50 percent drop in intraday volatility. In another analysis of 15 companies that transferred to the NYSE in 2003, effective spreads fell 33 percent.

“The conclusion drawn from the analysis of the 2002–2005 time period is consistent with previous studies,” said Mr. Bennett. “Issuers and investors have benefited from lower volatility, tighter spreads and reduced trading costs after switching their listings to the NYSE.”

Download a copy of the update here (pdf).

Read related press release here .