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

44 Pages Posted: 14 Feb 2011 Last revised: 5 May 2011

See all articles by Andreas Storkenmaier

Andreas Storkenmaier

Karlsruhe Institute of Technology

Martin Wagener

Stuttgart Stock Exchange

Date Written: May 3, 2011

Abstract

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 chips 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.

Keywords: Competition, Fragmentation, Market Quality, MiFID

JEL Classification: G10, G14, G18

Suggested Citation

Storkenmaier, Andreas and Wagener, Martin, Do we need a European 'National Market System'? Competition, Arbitrage, and Suboptimal Executions (May 3, 2011). Available at SSRN: https://ssrn.com/abstract=1760778 or http://dx.doi.org/10.2139/ssrn.1760778

Andreas Storkenmaier

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

Martin Wagener (Contact Author)

Stuttgart Stock Exchange ( email )

Börsenstraße 4
Stuttgart, 70174
Germany

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