Liquidity Supply across Multiple Trading Venues

Laurence Lescourret (1) , Sophie Moinas (2)

1 ESSEC Business School
2 Finance

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.

Mots clés: Market fragmentation; multi-venue market-making; bid-ask spreads

Domaines: Economies et finances

Laurence Lescourret, Sophie Moinas. Liquidity Supply across Multiple Trading Venues. 2015. ⟨hal-01137813⟩