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Foucault, T. and Menkveld, A. (2008). Competition for order flow and smart order routing systems. The Journal of Finance, 63(1):119-158.


  • Journal
    The Journal of Finance

We study the rivalry between Euronext and the London Stock Exchange (LSE) in the Dutch stock market to test hypotheses about the effect of market fragmentation. As predicted by our theory, the consolidated limit order book is deeper after entry of the LSE. Moreover, cross-sectionally, we find that a higher trade-through rate in the entrant market coincides with less liquidity supply in this market. These findings imply that (i) fragmentation of order flow can enhance liquidity supply and (ii) protecting limit orders against trade-throughs is important. © 2008 by The American Finance Association.