The Role of Traditional Exchanges in Fragmented Markets

43 Pages Posted: 8 Jan 2012 Last revised: 11 Feb 2012

Date Written: January 7, 2012


The Markets in Financial Instruments Directive (MiFID) considerably changed the nature of European equity markets. Introduced in November 2007, it allowed alternative trading venues to compete for order flow with traditional exchanges. This paper studies the impact of increased fragmentation of order flow on market quality in UK blue chip stocks from two different dimensions. First, we provide evidence that market quality increases along with the level of market fragmentation over 2009. Second, we evaluate intraday patterns of trading intensity and market quality measures. Our results show that the traditional exchange has an important function at market opening and closing, attracting a significantly higher share of trading volume compared to other periods of the trading day. Additionally, we find converging intraday patterns across trading venues over time which indicates a maturing market.

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

JEL Classification: G10, G14

Suggested Citation

Spankowski, Ulli Friedrich Paul and Wagener, Martin and Burghof, Hans-Peter, The Role of Traditional Exchanges in Fragmented Markets (January 7, 2012). Available at SSRN: or

Ulli Friedrich Paul Spankowski (Contact Author)

University of Hohenheim ( email )

Chair of Banking and Finance 510F
Schloss Osthof-Nord
Stuttgart, 70599

Martin Wagener

Stuttgart Stock Exchange ( email )

Börsenstraße 4
Stuttgart, 70174

Hans-Peter Burghof

University of Hohenheim ( email )

Schloss Hohenheim
Stuttgart, 70599
+49 711 459 22900 (Phone)
+49 711 459 23448 (Fax)

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