Trading Volume Shares and Market Quality : Pre- and Post- Zero Commissions

Zero-commission brokers increasingly route orders to wholesale market-makers and away from exchanges to possibly earn more PFOF in compensation for commission losses. Retail investors move assets to zero-commission brokers, whose assets increase 7%, despite investors’ awareness of potential conflicts of interest, and away from commission-charging brokers, whose assets decrease 9%. An implication of zero-commissions is that investors earn less price-improvement. Retail investors submit smaller size orders, including odd lots. Surprisingly, effective spreads decline because retail limit prices are increasingly posted inside bid-ask spreads. Price impact falls and intraday volatility increases as new orders are increasingly uninformed. Realized spreads are unchanged