Coordination of circuit breakers? Volume migration and volatility spillover in fagmented markets

Benjamin Clapham, Peter Gomber and Sven Panz

No 196, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: We study circuit breakers in a fragmented, multi-market environment and investigate whether a coordination of circuit breakers is necessary to ensure their effectiveness. In doing so, we analyze 2,337 volatility interruptions on Deutsche Boerse and research whether a volume migration and an accompanying volatility spillover to alternative venues that continue trading can be observed. Different to prevailing theoretical rationale, trading volume on alternative venues significantly decreases during circuit breakers on the main market and we do not find any evidence for volatility spillover. Moreover, we show that the market share of the main market increases sharply during a circuit breaker. Surprisingly, this is amplified with increasing levels of fragmentation. We identify high-frequency trading as a major reason for the vanishing trading activity on the alternative venues and give empirical evidence that a coordination of circuit breakers is not essential for their effectiveness as long as market participants shift to the dominant venue during market stress.

Keywords: Circuit Breaker; Volatility Interruption; Market Fragmentation; High-Frequency Trading; Stock Market; Regulation; Liquidity (search for similar items in EconPapers)
JEL-codes: G14 G15 G18 G28 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:196

DOI: 10.2139/ssrn.2906719

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