Do Multilateral Trading Facilities Contribute to Market Quality?

Riordan, Ryan; Storkenmaier, Andreas; Wagener, Martin

doi:10.2139/ssrn.1852769

Cited by 27 publications

(46 citation statements)

References 22 publications

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“…On average, quoted and effective spreads tend to be higher on Turquoise. Riordan, Storkenmaier, and Wagener (2010) analyze competition between the LSE and MTFs in FTSE 100 constituents over an observation period in April/May 2009. Their data show that the LSE leads in liquidity provision and trade based price discovery whereas Chi-X leads in quote based price discovery.…”

Section: Related Workmentioning

confidence: 99%

Do we need a European 'National Market System'? Competition, Arbitrage, and Suboptimal Executions

Storkenmaier

Wagener²

2011

SSRN Journal

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The introduction of the European Markets in Financial Instruments Directive (MiFID) ended the quasi-monopoly of national exchanges in equity trading across Europe and many new trading platforms emerged. European trading venues are neither formally linked by technology nor does regulation enforce price-priority across platforms. This raises the question of market integration of fragmented markets. We find that quotes for UK blue-chip stocks are closely linked across trading venues and that a high fraction of trades is executed at best available prices. Our results suggest that competition forces competing but disconnected platforms to quote prices as if they were formally linked.JEL Classification: G10, G14, G18.

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Section: Related Workmentioning

confidence: 99%

Do we need a European 'National Market System'? Competition, Arbitrage, and Suboptimal Executions

Storkenmaier

Wagener²

2011

SSRN Journal

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“…Alternative venues aim at traders who require low-latency trading infrastructure combined with low trading fees and innovative order types (Riordan et al, 2011).…”

Section: Market Fragmentationmentioning

confidence: 99%

Coordination of Circuit Breakers? Volume Migration and Volatility Spillover in Fragmented Markets

2017

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The introduction of the Markets in Financial Instruments Directive (MiFID I) in November 2007 fostered the competition between incumbent exchanges and emerging alternative venues. This increased competition resulted in a fragmented market landscape, which benefits market participants due to decreasing explicit transaction costs. However, market fragmentation is also associated with drawbacks for regulators and market participants since liquidity and price discovery are split across different trading venues.One particular issue in fragmented markets are safeguards such as circuit breakers, which aim to prevent extreme price jumps and excessive volatility. If a stock is traded on multiple venues, these circuit breakers might forfeit their effectiveness to manage excess volatility when they are not coordinated among different venues.Therefore, we provide new empirical insights concerning the discussion of circuit breaker coordination and analyze volume migration, shifts in market shares, and volatility spillovers during volatility interruptions in European securities markets. A volatility interruption is a specific type of circuit breaker that interrupts continuous trading with an unscheduled call auction. We observe that during volatility interruptions on the main market, turnover on the alternative venues almost dries out although there is no active circuit breaker on the alternative venues. Moreover, the market share of the main market increases sharply during the auction of the volatility interruption. Thus, the main market is therefore of major importance during turbulent times. By analyzing factors influencing the shift of market shares during volatility interruptions on the main market, we are able to trace back the increasing importance of the main market during these times to two different phenomena: the level of market fragmentation and the level of HFT activity.On the one hand, our results reveal that if a circuit breaker is triggered, traders either refrain from trading on the alternative venues or, if they trade, they prefer to participate in the call auction on the main market. On the other hand, we highlight that multi-market market making and arbitrage trading strategies of high-frequency traders get constrained and become more risky in the absence of the main market because an important price signal is missing and rebalancing their inventories gets too expensive.Consequently, our results provide empirical support against the hypothesis and often claimed concern that volume migrates from the main market to alternative venues during a circuit breaker on the main market. A coordination of circuit breakers among venues does not seem to be necessary because markets are implicitly coordinated due to traders' behavior. January 27, 2017 Coordination of Circuit AbstractWe study circuit breakers in a fragmented, multi-market environment and investigate whether a coordination of circuit breakers is necessary to ensure their effectiveness. In doing so, we analyze 2,337 volatility interruptions on Deutsche Boer...

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“…According to Riordan et al (2011), the introduction of multilateral trading systems boosts competition between exchanges. The ASX is a listed company under financials, but surprisingly it does not appear in Table 3.…”

Section: The Increased Competition Hypothesismentioning

confidence: 99%

“…Menkveld (2011) confirms that Chi-X has been a positive factor for market liquidity, while O' Hara and Ye (2011) show that transaction costs have been reduced significantly by the introduction of this trading platform. Riordan et al (2011) argue that the introduction of MTFs puts an end to the quasi-monopoly power of traditional stock exchanges and that investors benefit from competition and the significantly faster trading systems provided by these facilities. This article explores additional avenues whereby Chi-X affects equity markets.…”

Section: Introductionmentioning

confidence: 99%

“…Additionally, Jovanovic and Menkveld (2011) confirm that MTFs are preferred by highfrequency traders such that an unusually big order flows are observed on these platforms. Riordan et al (2010Riordan et al ( , 2011 argue that competition between exchanges improves market quality in terms of lower bid-ask spreads and better price discovery, arguing that it promotes innovation in the industry.…”

Section: Introductionmentioning

confidence: 99%

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The effects of multilateral trading systems on risk and return in equity markets

Ramiah¹,

Moosa²,

Pham³

et al. 2015

Applied Economics

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The event study methodology of Brown and Warner (1985) is adopted and augmented to evaluate the effect of the launch of multilateral trading systems on risk and return in equity markets. The methodology is supplemented with various techniques, such as the nonparametric ranking test and kernel regression, to find out if announcements about the introduction of Chi-X Australia generated abnormal returns (ARs). Asset pricing models are fitted with interaction variables, while GARCH, threshold ARCH (TARCH), exponential GARCH (EGARCH) and power-ARCH (PARCH) are used to determine changes in systematic risk. We find evidence in favour of Fisher's separation theorem and detect a new market anomaly, which we call the 'Fisher market anomaly'. Our results show that Chi-X system testings affect ARs. Consistent with the adaptive expectations theory, we confirm that the first announcement about the launch of Chi-X affected systematic risk the most. In addition, we identify industry and firm effects in risk analysis.

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Do Multilateral Trading Facilities Contribute to Market Quality?

Cited by 27 publications

References 22 publications

Do we need a European 'National Market System'? Competition, Arbitrage, and Suboptimal Executions

Do we need a European 'National Market System'? Competition, Arbitrage, and Suboptimal Executions

Coordination of Circuit Breakers? Volume Migration and Volatility Spillover in Fragmented Markets

The effects of multilateral trading systems on risk and return in equity markets

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