English, Article, Journal or magazine article edition: Competition for order flow and smart order routing systems Menkveld, Albert J.; Foucault, Thierry

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Bookmark: http://trove.nla.gov.au/version/22895
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Competition for order flow and smart order routing systems
Author
  • Menkveld, Albert J.
  • Foucault, Thierry
Physical Description
  • preprint
Notes
  • We study changes in liquidity following the introduction of a new electronic limit order market when, prior to its introduction, trading is centralized in a single limit order market. We also study how automation of routing decisions and trading fees affect the relative liquidity of rival markets. The theoretical analysis yields three main predictions: (i) consolidated depth is larger in the multiple limit order markets environment, (ii) consolidated bid-ask spread is smaller in the multiple limit order markets environment and (iii) the liquidity of the entrant market relative to that of the incumbent market increases with the level of automation for routing decisions (the proportion of 'smart routers'). We test these predictions by studying the rivalry between the London Stock Exchange (entrant) and Euronext (incumbent) in the Dutch stock market. The main predictions of the model are supported.
  • centralized limit order book; market fragmentation; smart routers; trade-throughs; trading fees
  • RePEc:cpr:ceprdp:5523
  • In this paper, the authors study the changes in liquidity following the introduction of a new electronic limit order market when, prior to its introduction, trading is centralized in a single limit order market. They also study how automation of routing decisions and trading fees affect the relative liquidity of rival markets.
  • market fragmentation; centralized limit order book; smart routers; trading fees; trade-throughs
  • RePEc:ebg:heccah:0831
Language
  • English
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