Fragmentation and the Price Discovery Dynamics: The Contributions of Multilateral Trading Facilities and Regulated Market

Posted: 4 Jun 2018 Last revised: 26 Jan 2019

See all articles by Roland L. Gillet

Roland L. Gillet

Université Paris I Panthéon-Sorbonne

Stéphanie Ligot

Université Paris I Panthéon-Sorbonne (PRISM Sorbonne and Labex RéFi)

Date Written: June 3, 2018

Abstract

Since 2007, the European Markets in Financial Instruments Directive (MiFID) has ended the national rule of order concentration and the directive has increased the fragmentation among the trading venues. This paper examines the price discovery dynamics for cross-listed CAC40 stocks, through the Information Shares metric, over the years 2012 and 2013 for three key places: NYSE Euronext Paris, BATS Europe and Chi-X Europe. We use the highfrequency order flow on individual stocks to study the monthly contribution of the Regulated Market (Euronext Paris) and Multilateral Trading Facilities (BATS and Chi-X Europe) to the price discovery by using the spread midpoint on the best limits at one-second intervals. We observe that the Multilateral trading facilities contribute significantly to the price discovery dynamics. The revision of MiFID should enhance the trade-through protections, and unified trade and price reporting protocols to avoid that fragmentation is detrimental on the market quality after the Brexit.

Keywords: Market Microstructure/Liquidity, Price discovery, Financial regulation (MiFID)

JEL Classification: D47, G14, K22

Suggested Citation

Gillet, Roland L. and Ligot, Stéphanie, Fragmentation and the Price Discovery Dynamics: The Contributions of Multilateral Trading Facilities and Regulated Market (June 3, 2018). Paris December 2018 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=3190193

Roland L. Gillet

Université Paris I Panthéon-Sorbonne ( email )

12, place du Panthéon
Paris, IL
France

Stéphanie Ligot (Contact Author)

Université Paris I Panthéon-Sorbonne (PRISM Sorbonne and Labex RéFi) ( email )

17, rue de la Sorbonne
Paris, 75005
France

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