The Demise of the NYSE and Nasdaq: Market Quality in the Age of Market Fragmentation

Abstract U.S. equity exchanges have experienced a dramatic increase in competition from new entrants, resulting the fragmentation of trading across venues. While market quality has generally improved over this period, we show most improvements accrued to largest stocks. We then bifurcation is related trading. Theoretically, more exchange should reduce costs, yet it may also adverse selection for liquidity providers, leading higher spreads. document evidence both effects (fragmentation improves large stocks while small experience relatively worse quality).