On 28 June, Thomas Gehrig, Professor of Finance at the University of Vienna gave a lecture on the European landscape of stock exchanges. He was introduced by Hans-Helmut Kotz, Research Center SAFE and Harvard University.
Stock exchanges are of high economic value in their support of the price finding mechanisms and by offering liquidity. Factors such as economies of scale, communication, competition and particularly liquidity exert centripetal forces which can lead to concentrations. The higher the degree of concentration, the more efficient becomes the price development. By contrast, factors that cause centrifugal effects, such as local information or competition, lead to more fragmentation: New trading platforms can arise with different key areas. According to Gehrig, regulation is the most important factor which determines market structure – in one direction or the other.
Gehrig made the point that fragmentation today is no longer a geographical issue but a matter of systems: electronic exchanges have gained extraordinary market shares during the last decade. Fragmented trade, however, reduces the quality of price finding if there is no requirement for best execution. While the National Market System (NMS) in the U.S. requires such a best execution, this is not the case in the EU’s MiFID.