Do Multilateral Trading Facilities Contribute to Market Quality?
36 Pages Posted: 27 May 2011
Date Written: May 25, 2011
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: Suggested Citation