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Competition for Order Flow and Smart Order Routing Systems

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.
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https://hal-hec.archives-ouvertes.fr/hal-00459801
Contributor : Antoine Haldemann <>
Submitted on : Thursday, February 25, 2010 - 11:07:47 AM
Last modification on : Thursday, January 11, 2018 - 6:19:31 AM

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Thierry Foucault, Albert J. Menkveld. Competition for Order Flow and Smart Order Routing Systems. The Journal of Finance, 2008, Vol.63,n°1, pp.119-158. ⟨10.1111/j.1540-6261.2008.01312.x⟩. ⟨hal-00459801⟩

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