Publication: Fragmentation vs. consolidation in Spanish Stock Exchange. A note.
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2017-01-01
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Elsevier
Abstract
After the implementation of MiFID (I and II), competition is a reality in all the European Cash Markets. A
natural consequence of competition is that orderflowis fragmented in different type of venues. This paper
focuses on the consequences of fragmentation on the local market liquidity of the Spanish Stock Exchange
(hereafter SSE). Our main result shows that, for our sample, fragmentation is relevant determining the
cost of liquidity. Following the analysis of Degryse et al. (2014), the linear component of fragmentation
has a positive and significant effect on liquidity (reduces spreads and increases Kyle’s Lambda) and the
quadratic term has a negative and significant effect on liquidity (increases spreads and reduces Kyle’s
Lambda). So, fragmentation is good for liquidity but beyond a given level of fragmentation, increasing it
is worse for the liquidity of the regulated market.
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Keywords
Competition, Fragmentation, Mifid
Bibliographic citation
Tapia, M. (2017). Fragmentation vs. consolidation in Spanish Stock Exchange. A note. En The Spanish Review of Financial Economics, 15(1), pp. 33-39.