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Effects of Lit and Dark Market Fragmentation on Liquidity

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  • Carole Gresse

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

Based on trade and quote data from eight exchanges and a trade reporting facility for a sample of LSE- and Euronext-listed equities, this article compares the consolidated liquidity of competing markets, also called global liquidity, and the local liquidity of the primary exchang, before and after MiFID. It then investigates how liquidity measured by spreads and best-quote depth relate to market fragmentation and internalization after MiFID. Market fragmentation is found to improve global and local liquidity, with spreads decreasing proportionally to market competition. The decline in depth observed in the early post-MiFID period is driven by other factors than market fragmentation. The only harmful effect is that fragmentation may reduce market depth for small stocks. Further, internalization is not found to be detrimental for liquidity.

Suggested Citation

  • Carole Gresse, 2011. "Effects of Lit and Dark Market Fragmentation on Liquidity," Post-Print halshs-00641122, HAL.
    • Handle: RePEc:hal:journl:halshs-00641122
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    References listed on IDEAS

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