Sven Panz

5th of February 2018

Jours fixes usually take place on the first monday of the month, starting at 5:00 p.m., in HoF E.01 / Deutsche Bank of the House of Finance (Campus Westend).

[Sven Panz, E-Finance Lab]

Coordination of Circuit Breakers? Volume Migration and Volatility Spillover in Fragmented Markets

We study circuit breakers in a fragmented, multi-market environment and investigate whether a coordination of circuit breakers is necessary to ensure their eff ectiveness. 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. Diff erent to prevailing theoretical rationale, trading volume on alternative venues signi cantly 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 ampli ed 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.