The Impact of Dark and Visible Fragmentation on Market Quality (Replaced by CentER DP 2011-069)

H.A. Degryse, F.C.J.M. de Jong, V.L. van Kervel

Research output: Working paperDiscussion paperOther research output


Two important characteristics of current European equity markets are rooted in changes in financial regulation (the Markets in Financial Instruments Directive). The regulation (i) allows new trading venues to emerge, generating a fragmented market place and (ii) allows for a substantial fraction of trading to take place in the dark, outside publicly displayed order books. This paper evaluates the impact on liquidity of fragmentation in visible order books and dark trading for a sample of 52 Dutch stocks. We consider global liquidity by consolidating the entire limit order books of all visible European trading venues, and local liquidity by considering the traditional market only. We find that fragmentation in visible order books improves global liquidity, but dark trading has a detrimental e¤ect. In addition, local liquidity is lowered by fragmentation in visible order books.
Original languageEnglish
Place of PublicationTilburg
Publication statusPublished - 2011

Publication series

NameCentER Discussion Paper


  • Market microstructure
  • Market fragmentation
  • Liquidity
  • MiFID


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