Andreas Storkenmaier

Do Multilateral Trading Facilities Contribute to Market Quality

The introduction of the Markets in Financial Instruments Directive (MiFID) ended the quasi-monopoly of traditional exchanges and enabled alternative platforms, so-called multilateral trading facilities (MTF), to compete for order flow. European regulation imposes neither a formal linkage nor a consolidated market record. This raises questions about the contribution to market quality of MTFs in an increasingly fragmented trading environment. We find that Chi-X, an MTF, contributes most to the price discovery process. Chi-X is competitive in liquidity supply and posts the tightest quoted spreads. Our results suggest that MTFs contribute positively to market quality and that investors benefit from competition.

The Quality of Electronic Markets

Technical progress in information and communication technologies, increased competition through alternative trading systems, and regulatory actions have significantly changed the trading landscape during the last decade. In this paper, we first provide a conceptual framework to analyze market quality. The framework comprises of external factors, the internal market structure, and specific quantifiable market quality measures. We categorize market quality measures into activity, liquidity, and information. Second, we compare the 1997 IBIS II trading system with the 2009 Xetra system of the Deutsche Boerse Group to exemplary apply our framework. We find that trading strategies have changed, activity has increased, and liquidity has improved for the Xetra system compared to IBIS II. More generally, our case study of the German market shows that, in the context of financial market innovation, the overall market quality has improved over the last couple of years.

Do we need a European 'National Market System'? Competition, Arbitrage, and Suboptimal Executions

The introduction of the European Markets in Financial Instruments Directive (MiFID) ended the quasi-monopoly of national exchanges in equity trading across Europe and many new trading platforms emerged. European trading venues are neither formally linked by technology nor does regulation enforce price-priority across platforms. This raises the question of market integration of fragmented markets. We find that quotes for UK blue chips are closely linked across trading venues and that a high fraction of trades is executed at best available prices. Our results suggest that competition forces competing but disconnected platforms to quote prices as if they were formally linked.

The Effect of Automated Trading on Market Quality: Evidence from the New York Stock Exchange

From the end of 2006 until the beginning of 2007 the NYSE introduced the NYSE Hybrid Market on a rolling basis. The NYSE Hybrid Market significantly changed the NYSE’s market model and supports automated execution for almost unlimited order sizes and different order types. The introduction of the Hybrid Market was driven by fundamental changes in the securities trading industry over the last years. This paper analyzes the effect of the NYSE Hybrid Market on market quality through analyzing different spread measures and price impact. Results show that the introduction of the Hybrid Market reduced trading costs and improved execution quality at the NYSE.