Transparency and Market Fragmentation

70 Pages Posted: 3 Dec 2016 Last revised: 15 May 2020

See all articles by Giovanni Cespa

Giovanni Cespa

City University London - Sir John Cass Business School; Centre for Economic Policy Research (CEPR)

Paolo Colla

Bocconi University - Department of Finance; Bocconi University - BAFFI Center on International Markets, Money, and Regulation

Date Written: May 15, 2020

Abstract

We study a dynamic model where a security is traded in two venues by an insider and noise traders, prices are set by competitive dealers, and markets are pre- and post-trade transparent. We consider two regimes, as the insider may or not disclose his trades. Without disclosure, a reduction in pre-trade transparency impairs (enhances) price discovery in the short (long) run. Conversely, with disclosure, price discovery is unaffected by transparency. Furthermore, disclosure can hamper short-run price discovery compared to the no disclosure case. Finally, disclosure reduces the cross-market price comovement due to fundamental information.

Keywords: Fragmentation, Informational Integration, Disclosure of Insider Trades, Order flow transparency, Dissimulation, Market Transparency, Informational Efficiency, Price Comovement

JEL Classification: G10, G12, G14

Suggested Citation

Cespa, Giovanni and Colla, Paolo, Transparency and Market Fragmentation (May 15, 2020). Available at SSRN: https://ssrn.com/abstract=2879273 or http://dx.doi.org/10.2139/ssrn.2879273

Giovanni Cespa

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44(0)2040708704 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Paolo Colla (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

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