Fragmentation vs. Consolidation in Spanish Stock Exchange. A Note

29 Pages Posted: 22 Mar 2016

See all articles by Mikel Tapia

Mikel Tapia

Universidad Carlos III de Madrid - Department of Business Administration

Date Written: March 21, 2016

Abstract

After the implementation of MiFID (I and II), competition is a reality in all the European Cash Markets. A natural consequence of competition is that order flow is fragmented in different type of venues. This paper focuses on the consequences of fragmentation on the local market liquidity of the Spanish Stock Exchange (hereafter SSE). Our main result shows that, for our sample, fragmentation is relevant determining the cost of liquidity. Following the analysis of Degryse, de Jong and van Kervel (2014), the linear component of fragmentation has a positive and significant effect on liquidity (reduces spreads and increases Kyle’s Lambda) and the quadratic term has a negative and significant effect on liquidity (increases spreads and reduces Kyle’s Lambda). So, fragmentation is good for liquidity but beyond a given level of fragmentation, increasing it is worse for the liquidity of the regulated market.

Keywords: Competition, Fragmentation, MiFID

JEL Classification: G1, G10

Suggested Citation

Tapia, Mikel, Fragmentation vs. Consolidation in Spanish Stock Exchange. A Note (March 21, 2016). Available at SSRN: https://ssrn.com/abstract=2752548 or http://dx.doi.org/10.2139/ssrn.2752548

Mikel Tapia (Contact Author)

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

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