The MiFIR Trading Obligation: Impact on Trading Volume and Liquidity
In: Working Paper; to be presented at the 35th Annual Conference of the French Finance Association (AFFI 2018); Paris, France
Category: Proceedings [Find it]
The new financial market regulation MiFID II / MiFIR will fundamentally change the trading and market infrastructure landscape in Europe. One key aspect is the trading obligation for shares that intends to restrict over-the-counter (OTC) trading to ensure that more trading takes place on regulated trading venues and on platforms of Systematic Internalisers (SIs). In this context, market observers often argue that SIs might have a competitive advantage due to the best execution concept in combination with the possible exemption of SIs from the tick size regime. Applying scenario analysis, we determine the likely migration of OTC trading volume to regulated trading venues and SIs. Based on our data set, covering intraday data including OTC trades as well as order book snapshots of EURO STOXX 50 constituents on major European venues, we investigate how changes in trading volume influence liquidity on lit markets. The results of our scenario analysis indicate that liquidity on lit markets might increase due to additional turnover formerly traded OTC. However, also a negative liquidity effect for lit markets and for the price discovery process is possible because of increased trading via SIs.
Reference No.: 2018-185
Enhancing Market Liquidity through Liquidity Provider Incentives
In: EFL Quarterly, 1/2018; Frankfurt am Main
Category: Miscellaneous [Find it]
Reference No.: 2018-5
Liquidity Provider Incentives in Fragmented Securities Markets
In: Working Paper; presented at the 24th Annual Meeting of the German Finance Association (DGF 2017); Ulm, Germany and the 5th Paris Financial Management Conference (PFMC 2017); Paris, France
Category: Proceedings [Find it]
We study the introduction of single-market liquidity provider incentives in fragmented securities markets. Specifically, we analyze the Xetra Liquidity Provider Program at Deutsche Boerse from two perspectives: First, we investigate whether fee-rebates for liquidity providers enhance liquidity on the specific venue thereby increasing its competitiveness and market share. Second, we analyze whether single-market liquidity provider incentives increase overall market liquidity available for market participants in a fragmented market. For this purpose, we consolidate high-frequency order book information of the most relevant lit venues and measure the specific liquidity contribution of individual markets to the aggregate liquidity in the fragmented market environment. Our empirical results show that single-market liquidity provider incentives in fragmented markets result in increased liquidity on the respective market, a higher contribution of that market to consolidated liquidity and gains in market share in terms of trading volume. However, we find no significant effect for turnover and liquidity of the fragmented market as a whole but a redistribution to the venue offering the incentives.
Reference No.: 2017-149