Regulating Information Disclosure Among Stock Exchange Market Makers

The paper considers the effect of mandatory last trade reporting in a competitive dealership market in the presence of traders with superior information. It is shown that last trade reporting typically has two opposing effects on the quality of the market. Bid-ask spreads decrease because the information contained in recent trading history reaches all competitors. However, they widen because market makers are less willing to pay to capture the information. The former effect generally dominates. 

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