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Regulatory impact analysis (RIA) serves to evaluate whether regulatory actions fulfill the desired goals. Although there are different frameworks for conducting RIA, they are only applicable to regulations whose impact can be measured with structured data. Yet, a significant and increasing number of regulations require firms to comply by communicating textual data to consumers and supervisors. Therefore, we develop a methodological framework for RIA in case of unstructured data based on textual analysis and apply it to a recent financial market regulation: MiFID II.
We study the introduction of single-market liquidity provider incentives in fragmented securities markets. Specifically, we investigate whether fee rebates for liquidity providers enhance liquidity on the introducing market and thereby increase its competitiveness and market share. Further, we analyze whether single-market liquidity provider incentives increase overall market liquidity available for market participants. Therefore, we measure the specific liquidity contribution of individual markets to the aggregate liquidity in the fragmented market environment. While liquidity and market share of the venue introducing incentives increase, we find no significant effect for turnover and liquidity of the whole market.
AGAINST THE BACKGROUND OF FRAGMENTED EUROPEAN EQUITIES TRADING, MARKET OPERATORS HAVE EMPLOYED DIFFERENT STRATEGIES TO INCREASE LIQUIDITY ON THEIR MARKET RELATIVE TO OTHER TRADING VENUES. ONE OF THESE STRATEGIES IS TO INCENTIVIZE LIQUIDITY PROVIDERS VIA FEE REBATES. THIS ARTICLE PRESENTS AN EMPIRICAL INVESTIGATION OF THE INTRODUCTION OF THE XETRA LIQUIDITY PROVIDER PROGRAM AT DEUTSCHE BÖRSE AND ITS IMPACT ON LIQUIDITY AND TRADING VOLUME ON THE INTRODUCING MARKET ITSELF AND ON THE CONSOLIDATED EUROPEAN MARKET.
We analyze how market fragmentation affects market quality of SME and other less actively traded stocks. Compared to large stocks, they are less likely to be traded on multiple venues and show, if at all, low levels of fragmentation. Concerning the impact of fragmentation on market quality, we find evidence for a hockey stick effect: Fragmentation has no effect for infrequently traded stocks, a negative effect on liquidity of slightly more active stocks, and increasing benefits for liquidity of large and actively traded stocks. Consequently, being traded on multiple venues is not necessarily harmful for SME stock market quality.