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Spoilt for Choice: Order Routing Decisions in Fragmented Equity Markets

SAFE Working Paper No. 143

41 Pages Posted: 17 Sep 2016 Last revised: 22 Sep 2016

Peter Gomber

Goethe University Frankfurt Faculty of Economics and Business Administration

Satchit Sagade

Goethe University Frankfurt - Department of Finance; Goethe University Frankfurt - Research Center SAFE

Erik Theissen

University of Mannheim - Finance Area

Moritz Christian Weber

Goethe University Frankfurt Faculty of Economics and Business Administration

Christian Westheide

University of Mannheim - Finance Area; Center for Financial Studies (CFS); Goethe University Frankfurt - Research Center SAFE

Date Written: August 31, 2016

Abstract

The equity trading landscape all over the world has changed dramatically in recent years. We have witnessed the advent of new trading venues and significant changes in the market shares of existing ones. We use an extensive panel dataset from the European equity markets to analyze the market shares of five categories of lit and dark trading mechanisms. Market design features, such as minimum tick size, immediacy and anonymity; market conditions, such as liquidity and volatility; and the informational environment have distinct implications for order routing decisions and trading venues' resulting market shares. Furthermore, these implications differ distinctly for small and large trades, probably because traders jointly optimize their trade size and venue choice. Our results both confirm and go beyond current theoretical predictions on trading in fragmented markets.

Keywords: Dark Trading, Fragmentation, Anonymity, Immediacy

JEL Classification: G10, G12

Suggested Citation

Gomber, Peter and Sagade, Satchit and Theissen, Erik and Weber, Moritz Christian and Westheide, Christian, Spoilt for Choice: Order Routing Decisions in Fragmented Equity Markets (August 31, 2016). SAFE Working Paper No. 143. Available at SSRN: https://ssrn.com/abstract=2839285 or http://dx.doi.org/10.2139/ssrn.2839285

Peter Gomber

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.efinancelab.de/no_cache/team/?user_wiwipubs_pi2[showUid]=478

Satchit Sagade (Contact Author)

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60323
Germany
+49 69 798 30085 (Phone)

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany
+49 69 798 30085 (Phone)

Erik Theissen

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

Moritz Christian Weber

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

Christian Westheide

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

Center for Financial Studies (CFS) ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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