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Market Fragementation, Cons, Degryse et al. (2015) - Coggle Diagram

- - - - institutional investors arrange their trades OTC or in the dark pools
- - - - heightens informed investors' ability to exploit information
        
        risk bearing capacity
        
        reduce risk sharing among investors
        
        market power
        
        give local market power to liquidity suppliers in each trading platform
        
        asymmetric information
        
        increased profits of informed trader come at the expense of liquidity traders
      - cannot take advantage of "thick market externalities" that each additional market participant reduces the trading fees or increases the liquidity of all other traders
        
        lack of economies of scale
        
        hard to find a trading partner quickly enough
      - need to search for best price
        
        exacerbate agency problems between investors and brokers
        
        reduce the incentives for liquidity providers to post good quotes
        
        interests conflict as brokers may receive monetary inducements for routing orders to specific markets or dealers
        
        increase the risk that brokers will not shop around for the best price
        
        costly investment in technologies
        
        time consuming