Liquidity Provider Incentives in Fragmented Securities Markets

Forthcoming in Journal of Empirical Finance

SAFE Working Paper No. 231

40 Pages Posted: 19 May 2017 Last revised: 4 Feb 2021

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 test theoretical predictions of changes in make/take fees in a setting with isolated make rebates for liquidity providers on a single trading venue (Xetra) by examining the impact on both Xetra and the overall market. The rebates lead to higher quoted depth but do not change bid-ask spreads or trading volume on Xetra. For the overall market, no change in trading volume or liquidity is observable. This shows that market participants redistribute their orders to the venue offering fee rebates rather than providing additional liquidity to the overall market. Consequently, the impact of fee changes depends on the setting.

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). Forthcoming in Journal of Empirical Finance, 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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