Opinion and Policy

Listing exchanges versus other lit venues: Price formation

(with Carole Comerton-Forde)

This paper is the second in a two-paper series evaluating order book quality and price formation in three European markets. This paper evaluates price formation on listing exchanges and the largest pan-European lit venues (Aquis, Cboe, Turquoise) for main-index stocks in France, Germany, and the U.K. Using BMLL data, we find listing exchanges and Cboe are similarly present at the EBBO but differ in how often they improve it: Euronext Paris and the London Stock Exchange set new EBBO prices far more frequently than other venues, while in Germany, Xetra improves the EBBO less often than Aquis and Cboe. Applying Hasbrouck's (1995) Information Share, Euronext and LSE contribute more to price discovery than other lit venues when using both trades and quotes. In Germany, Xetra leads price discovery when measured with trades but lags other lit venues when measured with quotes.

Listing exchanges versus other lit venues: Liquidity and order book dynamics

(with Carole Comerton-Forde)

This paper is the first in a two-paper series evaluating order book quality and price formation in three European markets. We evaluate order-book quality — liquidity and order dynamics — on listing exchanges and the three largest pan-European lit venues (Aquis, Cboe, Turquoise) for main-index stocks in France, Germany, and the U.K., using BMLL data. Liquidity varies by measure and country, but listing exchanges consistently show the narrowest quoted spreads and largest top-of-book depth. In France, Cboe delivers faster execution, lower order-to-trade ratios, and higher execution and fill rates, with no significant difference from Euronext in order duration. Germany shows a similar pattern, except Cboe has longer order durations than Xetra. In the U.K., the London Stock Exchange outperforms other lit venues on speed, order duration, and fill rates, and is statistically indistinguishable from Cboe on execution rates and order-to-trade ratios.

Are speed bumps beneficial?

(with Carole Comerton-Forde)

This paper reviews the academic literature on speed bumps. This evidence shows that implementing a speed bump benefits the exchange instituting it - enhancing competition at the top of its order book and reducing its quoted and effective spreads. However, the impact of speed bumps on overall market quality is less clear and remains a subject of debate.

Closing mechanisms in European Equities

(with Carole Comerton-Forde)

This paper examines end-of-day trading mechanisms in European equity markets. It shows that closing mechanisms account for around 18% of consolidated Euro volume in STOXX 600 stocks from January 2021 to September 2022. Alternative trading mechanisms that have emerged to compete with the primary market auctions only capture around 16% of this activity. The paper also explores the determinants of the exchange and alternative closing mechanism volumes. It also discusses the reasons behind the limited adoption of alternative closing mechanisms despite offering lower trading fees. These include differing perspectives of market participants about the potential impact of fragmentation at the close, the ability to capture the benefits of lower fees, and differences in the market structure of the mechanisms.

Retail Trading in European Equity Markets

(with Carole Comerton-Forde)

European market operators offer diverse retail trading mechanisms: retail-specific and all-to-all trading mechanisms that allow the interaction of all trader types. This paper examines retail-specific trading mechanisms available in European equity markets. It documents the features of these trading mechanisms and the level of activity over the period from January 2019 to July 2022. It also draws on the existing academic literature to gain insights into the mechanisms likely to lead to the best outcomes for retail investors. The paper also recommends that policy makers can improve retail execution quality by requiring additional transparency around retail trades and implementing a consolidated tape.