Competition for Order Flow and smart Order Routing Systems

T Foucault; A.J. Menkveld

doi:10.1111/j.1540-6261.2008.01312.x

Competition for Order Flow and smart Order Routing Systems

T Foucault
, A.J. Menkveld

Finance

Research output: Contribution to Journal › Article › Academic › peer-review

Abstract

We study the rivalry between Euronext and the London Stock Exchange (LSE) in the Dutch stock market to test hypotheses about the effect of market fragmentation. As predicted by our theory, the consolidated limit order book is deeper after entry of the LSE. Moreover, cross-sectionally, we find that a higher trade-through rate in the entrant market coincides with less liquidity supply in this market. These findings imply that (i) fragmentation of order flow can enhance liquidity supply and (ii) protecting limit orders against trade-throughs is important. © 2008 by The American Finance Association.

Original language	English
Pages (from-to)	119-158
Journal	The Journal of Finance
Volume	63
Issue number	1
DOIs	https://doi.org/10.1111/j.1540-6261.2008.01312.x
Publication status	Published - 2008

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Cite this

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abstract = "We study the rivalry between Euronext and the London Stock Exchange (LSE) in the Dutch stock market to test hypotheses about the effect of market fragmentation. As predicted by our theory, the consolidated limit order book is deeper after entry of the LSE. Moreover, cross-sectionally, we find that a higher trade-through rate in the entrant market coincides with less liquidity supply in this market. These findings imply that (i) fragmentation of order flow can enhance liquidity supply and (ii) protecting limit orders against trade-throughs is important. {\textcopyright} 2008 by The American Finance Association.",

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