Effects of the Competition between Multiple Trading Platforms on Market Liquidity : Evidence from the MiFID Experience

Based on high frequency data from eight exchanges and a trade reporting facility for a sample of LSE- and Euronext-listed equities, this article compares global and local liquidity before and after MiFID and investigates how liquidity relates to market fragmentation and internalization. Market fragmentation is found to improve global and local liquidity, with spreads decreasing proportionally to market competition. The decline in depth observed in the early post-MiFID period seems driven by other factors than market fragmentation. The only harmful effect is that fragmentation may reduce market depth for small stocks. Further, internalization is not proved to be detrimental for liquidity.