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Competition for order flow and smart order routing systems

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Author Info
Foucault, Thierry ()
Menkveld, Albert ()

Additional information is available for the following registered author(s):

Abstract

In this paper, the authors study the changes in liquidity following the introduction of a new electronic limit order market when, prior to its introduction, trading is centralized in a single limit order market. They also study how automation of routing decisions and trading fees affect the relative liquidity of rival markets.

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File URL: http://www.hec.fr/var/fre/storage/original/application/e7db3f35f13f322090afdac02a6e56cb.pdf
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Publisher Info
Paper provided by HEC Paris in its series Les Cahiers de Recherche with number 831.

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Length: 61 pages
Date of creation: 01 Jan 2006
Date of revision:
Handle: RePEc:ebg:heccah:0831

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Postal: HEC Paris, 78351 Jouy-en-Josas cedex, France
Web page: http://www.hec.fr/
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Related research
Keywords: market fragmentation; centralized limit order book; smart routers; trading fees; trade-throughs;

Other versions of this item:

Find related papers by JEL classification:
F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F18 - International Economics - - Trade - - - Trade and Environment

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Michael J. Barclay & Terrence Hendershott & D. Timothy McCormick, 2003. "Competition among Trading Venues: Information and Trading on Electronic Communications Networks," Journal of Finance, American Finance Association, vol. 58(6), pages 2637-2666, December. [Downloadable!] (restricted)
  2. Boehmer, Beatrice & Boehmer, Ekkehart, 2003. "Trading your neighbor's ETFs: Competition or fragmentation?," Journal of Banking & Finance, Elsevier, vol. 27(9), pages 1667-1703, September. [Downloadable!] (restricted)
  3. Dybvig, Philip H. & Spatt, Chester S., 1983. "Adoption externalities as public goods," Journal of Public Economics, Elsevier, vol. 20(2), pages 231-247, March. [Downloadable!] (restricted)
  4. Hendershott, Terrence & Jones, Charles M., 2005. "Trade-through prohibitions and market quality," Journal of Financial Markets, Elsevier, vol. 8(1), pages 1-23, February. [Downloadable!] (restricted)
  5. Terrence Hendershott & Charles M. Jones, 2005. "Island Goes Dark: Transparency, Fragmentation, and Regulation," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 18(3), pages 743-793. [Downloadable!] (restricted)
  6. Chowdhry, Bhagwan & Nanda, Vikram, 1991. "Multimarket Trading and Market Liquidity," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 4(3), pages 483-511. [Downloadable!] (restricted)
  7. Pagano, Marco, 1989. "Trading Volume and Asset Liquidity," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 255-74, May. [Downloadable!] (restricted)
    Other versions:
  8. Battalio, Robert H, 1997. " Third Market Broker-Dealers: Cost Competitors or Cream Skimmers?," Journal of Finance, American Finance Association, vol. 52(1), pages 341-52, March. [Downloadable!] (restricted)
  9. Bruno Biais & David Martimort & Jean-Charles Rochet, 2000. "Competing Mechanisms in a Common Value Environment," Econometrica, Econometric Society, vol. 68(4), pages 799-838, July.
    Other versions:
  10. Seppi, Duane J, 1997. "Liquidity Provision with Limit Orders and a Strategic Specialist," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 10(1), pages 103-50.
  11. Harris, L., 1990. "Liquidity , Trading Rules and Electronic Trading Systems ," Papers 91-8, Southern California - School of Business Administration.
  12. Mendelson, Haim, 1987. "Consolidation, Fragmentation, and Market Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(02), pages 189-207, June. [Downloadable!]
  13. Mitchell A. Petersen, 2005. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," NBER Working Papers 11280, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Bessembinder, Hendrik, 2003. "Quote-based competition and trade execution costs in NYSE-listed stocks," Journal of Financial Economics, Elsevier, vol. 70(3), pages 385-422, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Degryse, H.A. & Achter, M. van & Wuyts, G., 2007. "Dynamic Order Submission Strategies with Competition between a Dealer Market and a Crossing Network," Discussion Paper 2007-017, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
    Other versions:
  2. Sophie Laruelle & Charles-Albert Lehalle & Gilles Pag\`es, 2009. "Optimal split of orders across liquidity pools: a stochastic algorithm approach," Quantitative Finance Papers 0910.1166, arXiv.org, revised Nov 2009. [Downloadable!]
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