TY  - UNPD
A1  - Bernales, Alejandro
A1  - Garrido, Nicolás
A1  - Sagade, Satchit
A1  - Valenzuela, Marcela
A1  - Westheide, Christian
T1  - A tale of one exchange and two order books : effects of fragmentation in the absence of competition
T2  - SAFE working paper series ; No. 234
N2  - Exchanges nowadays routinely operate multiple, almost identically structured limit order markets for the same security. We study the effects of such fragmentation on market performance using a dynamic model where agents trade strategically across two identically-organized limit order books. We show that fragmented markets, in equilibrium, offer higher welfare to intermediaries at the expense of investors with intrinsic trading motives, and lower liquidity than consolidated markets. Consistent with our theory, we document improvements in liquidity and lower profits for liquidity providers when Euronext, in 2009, consolidated its order ow for stocks traded across two country-specific and identically-organized order books into a single order book. Our results suggest that competition in market design, not fragmentation, drives previously documented improvements in market quality when new trading venues emerge; in the absence of such competition, market fragmentation is harmful.
T3  - SAFE working paper - 234 
KW  - Fragmentation
KW  - Competition
KW  - Liquidity
KW  - Price Efficiency
Y1  - 2018
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/48378
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-483781
UR  - https://ssrn.com/abstract=3276548
IS  - October 2018
PB  - SAFE
CY  - Frankfurt am Main
ER  -