The Changing Microstructure of European Equity Markets

Center for Studies in Economics and Finance (CSEF) No. 1998.04

37 Pages Posted: 25 Nov 1998

See all articles by Marco Pagano

Marco Pagano

University of Naples Federico II - Department of Economics and Statistics; Centre for Studies in Economics and Finance (CSEF); Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: June 1998

Abstract

In the last decade, the increased competition between European stock exchanges has reduced the cost of trading and increased the variety of trading mechanisms. The London Stock Exchange, which initiated the competition in 1986 by setting up the SEAQ-I market, attracted considerable trading volume in Continental equities in the late 1980s. Later, however, Continental exchanges recovered most of the trading volume from London upon restructuring their auction systems so as to offer very low trading costs, greater transparency and continuous trading via an automated order book. At the same time, the spreads quoted by SEAQ-I dealers increased considerably. Lately, potential competition by continuous auction systems threatened even the market for British equities, and prompted the London Stock Exchange to replace its former SEAQ system with an automated order book. As in Continental Bourses, this automated auction system is expected to run in parallel with a dealership market for large trades. So trading systems appear to be converging towards a dualistic structure all over Europe. The paper documents these developments, and considers how the competition between European exchanges is likely to evolve and which opportunities and dangers the future may hold for them.

JEL Classification: G12

Suggested Citation

Pagano, Marco, The Changing Microstructure of European Equity Markets (June 1998). Center for Studies in Economics and Finance (CSEF) No. 1998.04. Available at SSRN: https://ssrn.com/abstract=141048 or http://dx.doi.org/10.2139/ssrn.141048

Marco Pagano (Contact Author)

University of Naples Federico II - Department of Economics and Statistics ( email )

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Einaudi Institute for Economics and Finance (EIEF)

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