Liquidity Provider Incentives in Fragmented Securities Markets

48 Pages Posted: 19 May 2017 Last revised: 24 May 2019

See all articles by Benjamin Clapham

Benjamin Clapham

Goethe University Frankfurt Faculty of Economics and Business Administration

Peter Gomber

Goethe University Frankfurt Faculty of Economics and Business Administration

Jens Lausen

Goethe University Frankfurt - Faculty of Economics and Business Administration

Sven Panz

Goethe University Frankfurt - Faculty of Economics and Business Administration

Date Written: May 22, 2019

Abstract

We study the introduction of single-market liquidity provider incentives in fragmented securities markets. Specifically, we analyze the introduction of the Xetra Liquidity Provider Program at Deutsche Boerse from two perspectives: First, we investigate whether fee-rebates for liquidity providers enhance liquidity on the trading venue thereby increasing its competitiveness and market share. Second, we analyze whether single-market liquidity provider incentives increase aggregate liquidity available in fragmented markets or whether they lead to a redistribution of liquidity among trading venues. Our results show that single-market liquidity provider incentives result in increased liquidity on the market introducing the rebates, a higher contribution of that market to consolidated liquidity, and gains in market share in terms of trading volume. However, we find no significant effect for trading volume and liquidity in the fragmented market as a whole but a redistribution to the venue offering the incentives.

Keywords: Liquidity, Trading Volume, Market Fragmentation, Liquidity Provider Incentives, Transaction Costs

JEL Classification: G10, G14

Suggested Citation

Clapham, Benjamin and Gomber, Peter and Lausen, Jens and Panz, Sven, Liquidity Provider Incentives in Fragmented Securities Markets (May 22, 2019). SAFE Working Paper No. 231. Available at SSRN: https://ssrn.com/abstract=2970452 or http://dx.doi.org/10.2139/ssrn.2970452

Benjamin Clapham (Contact Author)

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

Theodor-W.-Adorno-Platz 4
Frankfurt am Main, 60323
Germany

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

Jens Lausen

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

Theodor-W.-Adorno-Platz 4
Frankfurt am Main, D-60323
Germany

Sven Panz

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

Theodor-W.-Adorno-Platz 4
Frankfurt am Main, D-60325
Germany

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