| Popis: |
We examine changes in systemic liquidity risk brought about by the trade-through prohibition and the fragmentation of order flow caused by Reg NMS. A dynamic factor model allows us to decompose liquidity co-variances into “exchange-specific” and “market-wide” components. We document a decrease in liquidity measures driven by exchange-specific factors, and an increase in the variance explained by market-wide factors following the implementation of Reg NMS. Overall commonality decreases, with liquidity shocks smoothed across multiple trading venues. While liquidity shocks are shared among more exchanges (becoming more systemic), the impact of a single shock on any individual exchange actually declines. |
