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Market Fragmentation - Coggle Diagram

- - - - Intensifies competition among liquidity providers
        
        Increases consolidated liquidity in comparison to trading concentrated in a single platform
        
        Virtual consolidation due to smart order routing and the trade-through prohibition
      - Provides liquidity more proficient and where it is cheap
      - Liquidity rebates
      - Liquidity improves most for stocks with the greatest increases in the level of consolidation
    - - Between platforms
      - Between liquidity providers operating within different platforms
      - Competitive forces are necessary to promote operating efficiencies and to ensure that exchanges do not earn excessive monopolistic profits
    - - Different trading needs of investors can be best served by different trading mechanisms
    - - Benefits increasing in entrant market share
  - - - Smaller bid-ask spreads
        
        Majority of quoted spread reductions occur in the stocks that were least tick-constrained
        
        Reduction in the effective and realized spread of larger magnitudes than quoted spreads
        
        Reducing costs of liquidity provisions
    - - Duplicationg limit order schedules across market places
        
        Increase in queue jumping and order duplication when spreads are constrained or queues are long on the incumbent market
      - Competition from the entrant exchange reducing explicit fees and hence order processing costs
      - Lack of time priority between venues
        
        Allows queue jumping on the entrant exchange in the netrant exchange in the absence of inter-market time priority
        
        Increases competition
    - - Reduce explicit and implicit costs as a result of competition between exchanges
        
        Reduction in fees may have facilitated increased competition between liquidity providers
    - - Increase the markets’ ability to absorb large trades, lowering the Amihud liquidity metric on consolidated market
      - Tick-constrained stocks instead experiencing greater improvements in depth
    - - Dark pools give participants the ability to obtain a finer pricing grid
      - Dark pools can facilitate queue jumping in front of lit liquidity
- - - - No time precedence in respect to identically priced order in other centers
      - Like-for-like competition is necessary to generate positive outcomes
      - Competition for explicit fees charged by exchanges and the provisions of the ability for market makers to compete with each other on two separate exchange
      - Competition allows for cream skimming of uninformed traders
        
        Increase in spreads
    - - Weakens interactions between market makers active in different liquidity pools
        
        Hinders competition among liquidity providers
        
        Decreases incentive to offer good prices
    - - Hard for a new trading platform to cut into the market of an incumbent
  - - - Different transparency levels among different domestic trading venues
    - - The duplication of costs, including search, operating and regulatory costs
    - - ‘One size fits all’ approach will not be workable