Did informed order flow move to multilateral trading facilities? Evidence for some Eurozone countries

ABSTRACT

This paper investigates the effects of the fragmentation of European stock markets after MiFID application in 2007. Specifically, we discuss whether the process of fragmentation elicited a flight of informed trading from the primary stock exchanges to the incoming multilateral trading facilities (MTFs). Our sample covers 438 stocks traded on six important markets of the Eurozone and the period ranging from 2010 to 2015. Our findings demonstrate that, on average, primary exchanges still drive the process of price formation. However, MTF platforms have been gradually expanding their influence over the price discovery process of some of the stocks so that for a non-negligible minority of them, MTFs already lead the price discovery.

KEYWORDS:

• Market fragmentation
• price discovery
• MiFID
• panel vector error-correction models

JEL CODE:

• G12

Acknowledgments

The author is pleased to acknowledge financial support from Fundação para a Ciência e a Tecnologia and FEDER/COMPETE (grant UID/ECO/04007/2013) and FEDER/ COMPETE (POCI-01-0145-FEDER-007659). The author also thanks the editors and anonymous referees for valuable comments and suggestions.

Notes

1. Other definitions of efficiency include ‘the relative speed with which a price series reflects new information about the fundamental value’ or ‘a relative absence of noise, such as bid-ask bounce, tick discreteness, temporary deviations due to imperfect liquidity and so on’ (Putniņš, 2013, p. 70).