Spoilt for Choice: Order Routing Decisions in Fragmented Equity Markets

Abstract

The equity trading landscape all over the world has changed dramatically in recent years. We have witnessed the advent of new trading venues and significant changes in the market shares of existing ones. We use an extensive panel dataset from the European equity markets to analyze the market shares of five categories of lit and dark trading mechanisms. Market design features, such as minimum tick size, immediacy and anonymity; market conditions, such as liquidity and volatility; and the informational environment have distinct implications for order routing decisions and trading venues' resulting market shares. Furthermore, these implications differ distinctly for small and large trades, probably because traders jointly optimize their trade size and venue choice. Our results both confirm and go beyond current theoretical predictions on trading in fragmented markets.

Stock-Market Behavior on Ex-Dates: New Insights from German Stocks with Tax-Free Dividend

“…We do not suppose a significant shift to OTC trading, as reasoned byGomber et al (2016), because we do not expect systematic large-in-scale trades around ex-dates for our sample.…”

“…The Markets in Financial Instruments Directive (MiFID) defines, among others, multilateral trading facilities (MTFs) as trading venues. 10 Following Gomber et al (2016), the largest MTFs are CHI-X, BATS and Turquoise. 11 We consider these three MTFs in our analysis for the years 2008 to 2019.…”

Order Flow Segmentation, Liquidity and Price Discovery: The Role of Latency Delays

“…However, theoretical work by Baldauf and Mollner (2016) shows that the net effects of increased fragmentation are ambiguous for liquidity suppliers. Empirically, Kwan, Masulis, and McInish (2015) and Gomber et al (2016) Existing theoretical work on market fragmentation covers the choice of markets based on fees (Colliard and Foucault 2012), dark liquidity (Zhu 2014), and the profitability of financial intermediaries (Cimon 2016). We extend these existing works by modelling market segmentation based on differences in speed.…”