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The paper presents a study of the reasons that prompt fragmentation in market infrastructure in response to differing investor requirements and the foreseeable consequences for the quality and efficiency of that infrastructure.
The study uses Euronext Paris data collected by the AMF from October 2006 to October 2007 to characterise behaviour of initiators of block trade orders using three different methods of execution: on NSC via the order book, by means of cross trades, or on the over-the-counter segment with reporting to the central market (TCS). The results are set against the regulatory changes and new competitive initiatives set in motion by the Markets in Financial Instruments Directive (MiFID). The risks of order flow in large trades being diverted from the central market to alternative trading systems (in particular “dark pools”) are identified based on institutional investors’ profiles and preferences.