Network Features of European Trading Venues

Abstract

Consider a stock which is simultaneously traded on two or more venues, either because its company is cross-listed or because regulation allows multi-trading. We set the idea that these venues are 'indirectly' connected and represent a network. If the 'importance' of a venue is traditionally measured by its isolated-centrality (e.g. trading volumes observed inside it), we introduce a network measure, the degree-centrality, which includes trading activity due to its connections with other stock markets. Using trading volume data of nearly 22,000 equities we study the dynamic of market centrality among the various European trading venues between 2005 and 2009. European Regulated Stock Exchanges (SEs) and Alternative Trading Venues (ATVs), introduced in Europe in 2007, are the nodes/vertexes of our network. We observe that the birth of European ATVs (Multi-lateral Trading Facilities, Systematic Internalisers and the OTC market) eroded the isolated-centrality of certain European SEs (particularly London), but not for all. In contrast, degree-centrality significantly increased for the majority of the 48 SEs analyzed, in favor of multi-markets coexistence. Moreover, European ATVs did not act as substitute to the secondary market for cross-listed shares. Paradoxically, our results show that for medium size European SEs, cross-listing trading activity Granger-causes multi-trading on European ATVs.

Keywords: stock markets competition, exchange centrality, alternative trading venues, networks

JEL Classification: G10, G15, L14