Lescourret, Laurence and Moinas, Sophie (2015) Liquidity Supply across Multiple Trading Venues. TSE Working Paper, n. 14-533, Toulouse

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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.

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• Liquidity Supply across Multiple Trading Venues. (deposited 16 Mar 2015 13:47) [Currently Displayed]
  • Fragmentation and strategic market-making. (deposited 07 Sep 2023 09:12)