Trading Places: Price Leadership and the Competition for Order Flow
51 Pages Posted: 16 Aug 2014 Last revised: 5 Oct 2018
Date Written: August 15, 2014
We investigate the role of price leadership and informed trading in the competition for order flow between high-tech entrant trading venues and established national trading venues. An analysis of BATS Chi-X Europe (Chi-X), a high-tech entrant, and London Stock Exchange (LSE), an established national exchange, suggests that Chi-X’s price leadership in the London market is critical to its acquisition of market share at LSE’s expense. Intraday variations in price leadership, driven by informed trading, liquidity constraints and institutional trading arrangements are, however, inconsistent with the theoretical liquidity-efficiency link. Asymmetric effects of dark and algorithmic trading across the platforms are also reported.
Keywords: Price discovery, MiFID, Multilateral Trading Facilities, Regulated Markets, Informed trading, High frequency trading
JEL Classification: G14, G15, G18, G23
Suggested Citation: Suggested Citation