The Impact of Large Orders in Electronic Markets

Luisella Bosetti (), Pietro Gottardo (), Maurizio Murgia and Andrea Pinna
Additional contact information
Luisella Bosetti: Borsa Italiana, London Stock Exchange Group
Pietro Gottardo: University of Pavia, Department of Economics and Management

No BEMPS15, BEMPS - Bozen Economics & Management Paper Series from Faculty of Economics and Management at the Free University of Bozen

Abstract: This paper uses order-level data of all traders of the Italian stock exchange Borsa Italiana (BI) to resolve three issues that remained unsettled in the extant microstructure literature: the interaction between the exchange and a parallel market for large blocks; the asymmetry between the price impacts of buy and sell orders; and the behaviour of liquidity in the limit order book around large orders. Price impacts and liquidity effects of block trades at BI are surprisingly different from existing empirical literature. Our findings reveal that price effects are much lower in the electronic downstairs market than in the upstairs market. Such result is the opposite of what can be found in previous studies. Moreover, trading costs in the central limit order book at BI are lower than in any other exchange analysed in the past. We explain that in terms of exchange trading architecture. In fact, rules on block trading at BI allowed a parallel dark pool to coexist with the consolidated limit order book well before market liberalization was introduced by the MIFID directive. This left the downstairs market with a selection of liquidity-driven orders and unprecedented low price impacts.

Keywords: Large Orders; Electronic exchange; Upstairs market; Block trading; Price Impact; Liquidity; Dark Pool (search for similar items in EconPapers)
JEL-codes: G14 G15 G23 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2014-06
New Economics Papers: this item is included in nep-mst and nep-ore
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Related works:
Journal Article: The impact of large orders in electronic markets (2019)
Working Paper: The Impact of Large Orders in Electronic Markets (2015)
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