The Impact of Market Fragmentation on European Stock Exchanges

CONSOB Working Paper No. 69

38 Pages Posted: 2 Feb 2012

See all articles by Monica Gentile

Monica Gentile

CONSOB (Commissione Nazionale per le Società e la Borsa)

Simone Francesco Fioravanti

Commissione Nazionale per le Società e la Borsa (CONSOB)

Date Written: July 1, 2011

Abstract

MiFID has fostered competition between stock exchanges and alternative trading systems by removing the possibility for EU Member States to establish that equities must be traded only on regulated markets (so-called concentration rule). This paper empirically measures how market fragmentation is affecting the quality of blue chip’s trading on European regulated markets. Our study evaluates the impact of fragmentation on liquidity, on information efficiency and on the price discovery process. We test the robustness of our results by applying a variety of empirical approaches. Our main findings are that fragmentation increases liquidity, but it reduces market efficiency. Moreover, primary exchanges tend to lose their leading role in the price discovery process of fragmented stocks. We show that our results are in line with some regulatory concerns which are leading to the review of MiFID.

Keywords: MiFID, Multilateral trading facilities, Eurostoxx, fragmentation, liquidity, information efficiency, price discovery

JEL Classification: G14, G15, G28

Suggested Citation

Gentile, Monica and Fioravanti, Simone Francesco, The Impact of Market Fragmentation on European Stock Exchanges (July 1, 2011). CONSOB Working Paper No. 69. Available at SSRN: https://ssrn.com/abstract=1997419 or http://dx.doi.org/10.2139/ssrn.1997419

Monica Gentile (Contact Author)

CONSOB (Commissione Nazionale per le Società e la Borsa) ( email )

Roma 00198
Italy

Simone Francesco Fioravanti

Commissione Nazionale per le Società e la Borsa (CONSOB) ( email )

Roma 00198
Italy

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