Alternative Trading Systems and Liquidity
AbstractA diversity of so-called Alternative Trading Systems (ATS) has challenged the existing traditional exchanges. This paper studies the impact of these ATS on the liquidity on the traditional financial markets using a market microstructure approach. In the United States ATS have been particularly successful in attracting trade in the Nasdaq dealer market, whereas they are less successful in competition with the NYSE. The theoretical reasoning behind this conjecture is that the agency nature of trading at the ATS allows investors to trade directly with each other without the intervention of a dealer. We argue that since continental European exchanges are typically organized as auction markets implying an agency nature of trading, the liquidity externality will prevent the auction-type ATS from breaking through and acquiring a significant market share in Europe. Only Crossing Networks may turn out to be more successful in realizing trades in Europe as they rely on the efficiency of price discovery on their primary market.
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Bibliographic InfoPaper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces0122.
Date of creation: Mar 2001
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- Felix Treptow & Stefan Wagner, 2005. "Stock Exchanges and Issuers: A Changing Relationship," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 74(4), pages 125-139.
- Degryse, H.A., 2007. "Competition on Financial Markets: Does Market Design Matter?," Discussion Paper 2007-004, Tilburg University, Tilburg Law and Economic Center.
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