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Trading activity and price impact in parallel markets: SETS vs. off-book market at the London Stock Exchange

Listed author(s):
  • Angelo Carollo
  • Gabriella Vaglica
  • Fabrizio Lillo
  • Rosario N. Mantegna

We study empirically the trading activity in the electronic on-book segment and in the dealership off-book segment of the London Stock Exchange, investigating separately the trading of active market members and of other market participants who are non-members. We find that (i) the volume distribution of off-book transactions has a significantly fatter tail than that of on-book transactions, (ii) groups of members and non-members can be classified in categories according to their trading profile, (iii) there is a strong anticorrelation between the daily inventory variation of a market member due to on-book market transactions and an inventory variation due to off-book market transactions with non-members, and (iv) the autocorrelation of the sign of the orders of non-members in the off-book market is slowly decaying. We also analyse the on-book price impact function over time, both for positive and negative lags, of the electronic trades and of the off-book trades. The unconditional impact curves are very different for the electronic trades and the off-book trades. Moreover, there is a small dependence of the impact on the volume for the on-book electronic trades, while the shape and magnitude of the impact function of off-book transactions strongly depend on volume.

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Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

Volume (Year): 12 (2012)
Issue (Month): 4 (November)
Pages: 517-530

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Handle: RePEc:taf:quantf:v:12:y:2012:i:4:p:517-530
DOI: 10.1080/14697688.2012.664910
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