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Liquidity Supply across Multiple Trading Venues

Author

Listed:
  • Laurence Lescourret

    (ESSEC Business School)

  • Sophie Moinas

    (Finance - CRM - Centre de Recherche en Management - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - IAE - Institut d'Administration des Entreprises - Toulouse - CNRS - Centre National de la Recherche Scientifique)

Abstract
Financial markets are increasingly fragmented. How to supply liquidity in this environment? Using an inventory model, we analyze how two strategic intermediaries compete across two venues that can be hit simultaneously by liquidity shocks of equal or opposite signs. Although order flow is fragmented ex-ante, we show that intermediaries might strategically consolidate it ex-post, improving global liquidity. We also fi nd that local spreads co-move together across venues as a result of global inventory management. Using Euronext proprietary data, we uncover new evidence of inventory control across venues and fi nd that local spreads vary in a way uniquely predicted by the model.

Suggested Citation

  • Laurence Lescourret & Sophie Moinas, 2015. "Liquidity Supply across Multiple Trading Venues," Working Papers hal-01137813, HAL.
    • Handle: RePEc:hal:wpaper:hal-01137813
    Note: View the original document on HAL open archive server: https://essec.hal.science/hal-01137813
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    References listed on IDEAS

    as
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    Cited by:

    1. Fany Declerck & Laurence Lescourret, 2015. "Dark pools et trading haute fréquence : une évolution utile ?," Revue d'économie financière, Association d'économie financière, vol. 0(4), pages 113-126.

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    More about this item

    Keywords

    Market fragmentation; multi-venue market-making; bid-ask spreads;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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