Order preferencing enables a market-maker to execute captive order flow off the primary market. This practice is known to generate wider spreads due to its anti-competitive effects. It also increased inventory risks for dealers. The Nasdaq preopening offers a laboratory to test whether market-makers use non-binding prices as a tool to control their inventory position. Our findings corroborate our main hypothesis that the Nasdaq non-trading mechanism incorporates inventory information into prices.
LESCOURRET, L. et ROBERT, C. (2003). Why is there heterogeneity among dealers’ behavior during the Nasdaq preopening session? Dans: EFMA Basel Meeting. SSRN.