Liquidity Supply across Multiple Trading Venues

Laurence Lescourret and Sophie Moinas
Authors registered in the RePEc Author Service: Laurence Daures

No 14-533, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: Market fragmentation and technology have given rise to new trading strategies. One of them is to supply liquidity simultaneously across multiple trading venues, which requires multi-venue management of inventory risk. We build an inventory model in which order ow fragments across two venues, and show that multi-venue market-makers might consolidate the fragmented order ow, leading to lower transaction costs. We also show that multi-venue market-making strategies result in interrelated spreads. We empirically investigate the main predictions of our model using Euronext proprietary data that contain member's orders and trades identities for multi-listed firms. We find evidence of cross-venue inventory control, in particular for formally registered market-makers. We also find that bid-ask spreads vary with inventories of multi-venue market-makers and the way order ow fragments across all venues, as uniquely predicted by our model.

Keywords: Market fragmentation; multi-venue market-making; bid-ask spreads (search for similar items in EconPapers)
Date: 2014-10, Revised 2015-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Liquidity Supply across Multiple Trading Venues (2015)
Working Paper: Liquidity Supply across Multiple Trading Venues (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:20522

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