Liquidity Supply across Multiple Trading Venues

Lescourret, Laurence and Moinas, Sophie (2014) Liquidity Supply across Multiple Trading Venues. TSE Working Paper, n. 14-533

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Official URL: http://tse-fr.eu/pub/20522

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.

Item Type: Monograph (Working Paper)
Language: English
Date: October 2014
Uncontrolled Keywords: Market fragmentation, multi-venue market-making, bid-ask spreads
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSM Research (Toulouse), TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 13:47
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:20522
URI: http://publications.ut-capitole.fr/id/eprint/16419

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