Abstract
Based on data from eight exchanges and a trade reporting facility for a large sample of LSE- and Euronext-listed equities, this article investigates how lit and dark market fragmentation affects liquidity. Neither dark trading, nor fragmentation between lit order books, is found to harm liquidity. Lit fragmentation improves spreads and depth across markets and locally on the primary exchange, or at worst does not affect them. Benefits are greater for large stocks and stocks with less electronic trading. Lit fragmentation however harms the depth of small stocks. Adverse effects on the depth of large stocks result from algorithmic trading and not from fragmentation.
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