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
Date Written: February 1, 2011
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: Suggested Citation