Do Multilateral Trading Facilities Contribute to Market Quality?

36 Pages Posted: 27 May 2011

See all articles by Ryan Riordan

Ryan Riordan

Smith School of Business

Andreas Storkenmaier

Karlsruhe Institute of Technology

Martin Wagener

Stuttgart Stock Exchange

Date Written: May 25, 2011

Abstract

The introduction of the Markets in Financial Instruments Directive (MiFID) ended the quasi-monopoly of traditional exchanges and enabled alternative platforms, so-called multilateral trading facilities (MTF), to compete for order flow. European regulation imposes neither a formal linkage nor a consolidated market record. This raises questions about the contribution to market quality of MTFs in an increasingly fragmented trading environment. We find that Chi-X, an MTF, contributes most to the price discovery process. Chi-X is competitive in liquidity supply and posts the tightest quoted spreads. Our results suggest that MTFs contribute positively to market quality and that investors benefit from competition.

Keywords: Market Quality, Competition, Fragmentation, MiFID, MTFs

JEL Classification: G10, G14

Suggested Citation

Riordan, Ryan and Storkenmaier, Andreas and Wagener, Martin, Do Multilateral Trading Facilities Contribute to Market Quality? (May 25, 2011). Available at SSRN: https://ssrn.com/abstract=1852769 or http://dx.doi.org/10.2139/ssrn.1852769

Ryan Riordan

Smith School of Business ( email )

Smith School of Business, Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

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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