Trading Activity and Price Impact in Parallel Markets: SETS vs. Off-Book Market at the London Stock Exchange

16 Pages Posted: 26 Feb 2011 Last revised: 11 Dec 2011

See all articles by Angelo Carollo

Angelo Carollo

University of Palermo

Gabriella Vaglica

University of Palermo

Fabrizio Lillo

Università di Bologna

Rosario N. Mantegna

University of Palermo

Date Written: February 1, 2011

Abstract

We empirically study the trading activity in the electronic on-book segment and in the dealership off-book segment of the London Stock Exchange, investigating separately the trading of active market members and of other market participants which are non-members. We find that (i) the volume distribution of off-book transactions has a significantly fatter tail than the one of on-book transactions, (ii) groups of members and non-members can be classified in categories according to their trading profile (iii) there is a strong anticorrelation between the daily inventory variation of a market member due to the on-book market transactions and inventory variation due to the off-book market transactions with non-members, and (iv) the autocorrelation of the sign of the orders of non-members in the off-book market is slowly decaying. We also analyze the on-book price impact function over time, both for positive and negative lags, of the electronic trades and of the off-book trades. The unconditional impact curves are very different for the electronic trades and the off-book trades. Moreover there is a small dependence of impact on the volume for the on-book electronic trades, while the shape and magnitude of impact function of off-book transactions strongly depend on volume.

Keywords: Financial markets, market segments, high frequency trading, upstair market, price impact

JEL Classification: G10, G12, G14

Suggested Citation

Carollo, Angelo and Vaglica, Gabriella and Lillo, Fabrizio and Mantegna, Rosario Nunzio, Trading Activity and Price Impact in Parallel Markets: SETS vs. Off-Book Market at the London Stock Exchange (February 1, 2011). Available at SSRN: https://ssrn.com/abstract=1769584 or http://dx.doi.org/10.2139/ssrn.1769584

Angelo Carollo

University of Palermo ( email )

Viale delle Scienza
Palermo, 90128
Italy

Gabriella Vaglica

University of Palermo ( email )

Viale delle Scienza
Palermo, 90128
Italy

Fabrizio Lillo

Università di Bologna ( email )

Via Zamboni, 33
Bologna, 40126
Italy

Rosario Nunzio Mantegna (Contact Author)

University of Palermo ( email )

Dipartimento di Fisica e Chimica
Viale delle Scienze, Edificio 18
Palermo, PA I-90128
Italy
+3909123899074 (Phone)
+3909123860815 (Fax)

HOME PAGE: http://www.unipa.it/persone/docenti/m/rosario.mantegna

Register to save articles to
your library

Register

Paper statistics

Downloads
73
rank
314,786
Abstract Views
803
PlumX Metrics