Centralised order books versus hybrid order books: A paired comparison of trading costs on NSC (Euronext Paris) and SETS (London Stock Exchange)

Abstract

This article compares the cost of trading large capitalisation equities on the hybrid order-driven segment of the London Stock Exchange and the centralised electronic order book of Euronext. Using samples of stocks matched according to economic sector, free float capitalisation, and trading volume, our study shows that transaction costs are lower on the centralised order book than on the hybrid order book. The presence of dealers outside the electronic order book favours the frequency of large trades, but is associated with higher execution costs for all other trades and higher adverse selection and inventory costs inside the order book.