Commonality in Liquidity and Multilateral Trading Facilities
42 Pages Posted: 2 Feb 2016 Last revised: 8 Jan 2020
Date Written: December 20, 2019
We use the introduction of two multilateral trading facilities (MTFs) to examine the impact of market fragmentation on commonality in liquidity. We find that the introduction of MTFs following the Markets in Financial Instruments Directive increases the comovement of stocks’ liquidity with MTF liquidity, while the comovement with the home market liquidity generally decreases. We also find that the higher the MTF trading volume or the number of MTFs trading a stock, the stronger the effect. Further, we find that the commonality in liquidity remains unchanged for a matched control sample of stocks that do not trade on MTFs.
Keywords: commonality in liquidity, multilateral trading facilities, market fragmentation, Turquoise, NYSE Arca Europe
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation