Forced consolidation

The article delves into the long-standing debate over the consolidation of trade and quote systems in European equity markets. It focuses on the benefits of such systems, using the U.S. National Market System as a case study. The authors argue that consolidation can lead to lower volatility, tighter bid-ask spreads, and increased market share for dominant exchanges. The study employs a unique hand-collected dataset to observe changes in market quality measures across different exchanges. The findings suggest that consolidation does not harm market quality and may even improve it, offering valuable insights for policymakers and financial professionals. The article also discusses the implications of these findings for the ongoing discussions on market connectivity in the EU, emphasizing the potential monetary offsets to the costs of creating a consolidated system.