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Market Fragmentation, Updated Edition - Coggle Diagram
Market Fragmentation
Cons
liquidity split in pools
reduced incentives for liquidity providers to quote the best prices
imperfect risk sharing
not all traders have acces to all venues
searching costs
high-tech searching tools
broker-client relationship
different prices for the same security
asymmetric information
less transparency
price impact of big "dark" trades
cream-skimming effect
Pros
increases competition
leading to efficient market
foster
innovation
in trading technology
reduces transaction costs and fees
consolidated liquidity between market venues
liquidity providers compete on a finer pricing grid
different tick sizes between venues
Degryse et al. (2014) "The Impact of Dark Trading and Visible Fragmentation on Market Quality"
different venues suit different needs
institutions' orders carried out OTC, in dark pools
availability to broader audience
Updated Edition