Advanced Search
MyIDEAS: Login to save this paper or follow this series

Trade-throughs in European cross-traded equities after transaction costs: Empirical evidence for the EURO STOXX 50

Contents:

Author Info

  • Ende, Bartholomäus
  • Lutat, Marco
Registered author(s):

    Abstract

    The new regulatory environment triggered by MiFID has resulted in a transformed competitive landscape and increased fragmentation among execution venues in Europe. One key component of MiFID is best execution, i.e. investment firms are obliged to achieve the best result for customer orders on a consistent basis. Specifically for retail transactions, the total consideration, i.e. price and explicit transaction costs, shall apply as a benchmark for the best result. In contrary to RegNMS, MiFID does not require to achieve the best result based on a real-time comparison of available prices. Therefore, after the introduction of MiFID the question on the extent of suboptimal order executions after transaction costs arises. Applying order book data for EURO STOXX 50 securities of ten European execution venues, this paper analyses suboptimal order executions including transaction costs by simulating an optimal Smart Order Routing engine. The results show that after explicit transaction costs, specifically cross-system settlement costs, still an economically relevant number of suboptimal order executions prevails. The developed methodology and parameters enable for assessing and future tracking of the efficiency of order execution in European equity markets and the effectiveness of regulatory measures both on the trading level, e.g. MiFID, or on the posttrading level, e.g. the Code of Conduct for Clearing and Settlement. --

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://econstor.eu/bitstream/10419/43270/1/63950793X.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2010/15.

    as in new window
    Length:
    Date of creation: 2010
    Date of revision:
    Handle: RePEc:zbw:cfswop:201015

    Contact details of provider:
    Postal: House of Finance, Grüneburgplatz 1, HPF H5, D-60323 Frankfurt am Main
    Phone: +49 (0)69 798-30050
    Fax: +49 (0)69 798-30077
    Email:
    Web page: http://www.ifk-cfs.de/
    More information through EDIRC

    Related research

    Keywords:

    Find related papers by JEL classification:

    References

    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.:
    as in new window
    1. Chowdhry, Bhagwan & Nanda, Vikram, 1991. "Multimarket Trading and Market Liquidity," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 4(3), pages 483-511.
    2. Ellis, Katrina & Michaely, Roni & O'Hara, Maureen, 2000. "The Accuracy of Trade Classification Rules: Evidence from Nasdaq," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 35(04), pages 529-551, December.
    3. Foerster, Stephen R. & Karolyi, G. Andrew, 1998. "Multimarket trading and liquidity: a transaction data analysis of Canada-US interlistings," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 8(3-4), pages 393-412, December.
    4. Bacidore, Jeffrey & Ross, Katharine & Sofianos, George, 2003. "Quantifying market order execution quality at the New York stock exchange," Journal of Financial Markets, Elsevier, Elsevier, vol. 6(3), pages 281-307, May.
    5. Foucault, Thierry & Menkveld, Albert, 2006. "Competition for order flow and smart order routing systems," Les Cahiers de Recherche 831, HEC Paris.
    6. Joachim Grammig & Michael Melvin & Christian Schlag, 2005. "Internationally Cross-Listed Stock Prices During Overlapping Trading Hours: Price Discovery and Exchange Rate Effects," Working Paper Series: Finance and Accounting 78, Department of Finance, Goethe University Frankfurt am Main.
    7. Bessembinder, Hendrik, 1999. "Trade Execution Costs on NASDAQ and the NYSE: A Post-Reform Comparison," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 34(03), pages 387-407, September.
    8. Kauko, Karlo, 2003. "Interlinking securities settlement systems: A strategic commitment?," Research Discussion Papers, Bank of Finland 26/2003, Bank of Finland.
    9. Bessembinder, Hendrik & Kaufman, Herbert M., 1997. "A cross-exchange comparison of execution costs and information flow for NYSE-listed stocks," Journal of Financial Economics, Elsevier, Elsevier, vol. 46(3), pages 293-319, December.
    10. Froot, Kenneth A. & Dabora, Emil M., 1999. "How are stock prices affected by the location of trade?," Journal of Financial Economics, Elsevier, Elsevier, vol. 53(2), pages 189-216, August.
    11. Cheol S. Eun & Sanjiv Sabherwal, 2003. "Cross-Border Listings and Price Discovery: Evidence from U.S.-Listed Canadian Stocks," Journal of Finance, American Finance Association, American Finance Association, vol. 58(2), pages 549-576, 04.
    12. Porter, David C. & Thatcher, John G., 1998. "Fragmentation, competition, and limit orders: New evidence from interday spreads," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 38(1), pages 111-128.
    13. Battalio, Robert & Hatch, Brian & Jennings, Robert, 2003. "All else equal?: a multidimensional analysis of retail, market order execution quality," Journal of Financial Markets, Elsevier, Elsevier, vol. 6(2), pages 143-162, April.
    14. Amihud, Yakov & Lauterbach, Beni & Mendelson, Haim, 2003. "The Value of Trading Consolidation: Evidence from the Exercise of Warrants," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 38(04), pages 829-846, December.
    15. Gagnon, Louis & Andrew Karolyi, G., 2010. "Multi-market trading and arbitrage," Journal of Financial Economics, Elsevier, Elsevier, vol. 97(1), pages 53-80, July.
    16. Biais, Bruno, 1993. " Price Information and Equilibrium Liquidity in Fragmented and Centralized Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 48(1), pages 157-85, March.
    17. Ian Domowitz & Jack Glen & Ananth Madhavan, 1998. "International Cross-Listing and Order Flow Migration: Evidence from an Emerging Market," Journal of Finance, American Finance Association, American Finance Association, vol. 53(6), pages 2001-2027, December.
    18. Michael J. Barclay & Terrence Hendershott, 2004. "Liquidity Externalities and Adverse Selection: Evidence from Trading after Hours," Journal of Finance, American Finance Association, American Finance Association, vol. 59(2), pages 681-710, 04.
    19. Madhavan, Ananth, 1995. "Consolidation, Fragmentation, and the Disclosure of Trading Information," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 8(3), pages 579-603.
    20. Bennett, Paul & Wei, Li, 2006. "Market structure, fragmentation, and market quality," Journal of Financial Markets, Elsevier, Elsevier, vol. 9(1), pages 49-78, February.
    21. Mendelson, Haim, 1987. "Consolidation, Fragmentation, and Market Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 22(02), pages 189-207, June.
    22. Ian Domowitz, 2002. "Liquidity, Transaction Costs, and Reintermediation in Electronic Markets," Journal of Financial Services Research, Springer, Springer, vol. 22(1), pages 141-157, August.
    23. Macey, Jonathan R. & O'Hara, Maureen, 1997. "The Law and Economics of Best Execution," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 6(3), pages 188-223, July.
    24. Bessembinder, Hendrik & Kaufman, Herbert M., 1997. "A Comparison of Trade Execution Costs for NYSE and NASDAQ-Listed Stocks," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 32(03), pages 287-310, September.
    25. Hasbrouck, Joel, 1995. " One Security, Many Markets: Determining the Contributions to Price Discovery," Journal of Finance, American Finance Association, American Finance Association, vol. 50(4), pages 1175-99, September.
    26. Chan, Louis K C & Lakonishok, Josef, 1997. " Institutional Equity Trading Costs: NYSE versus Nasdaq," Journal of Finance, American Finance Association, American Finance Association, vol. 52(2), pages 713-35, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Gomber, Peter & Jäger, Benedikt, 2014. "MiFID: Eine systematische Analyse der Zielerreichung," SAFE White Paper Series 14, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:zbw:cfswop:201015. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.