Our speaker will be Julia Reynolds (Università della Svizzera italiana Institute of Finance).

The talk will take place at 12:00-13:00 in seminar room D4.0.019.

She will give a talk on "The Impact of Trade-Through Prohibition on Liquidity Commonality", co-authored with Sean Foley.

Abstract: We examine changes in systemic liquidity risk brought about by Regulation National Market System (Reg NMS), particularly in its provisions against trade-throughs and the subsequent fragmentation of order flow. A dynamic factor model approach allows us to decompose liquidity co-variances into an "exchange-specific" component that is conned to an individual trading venue, and a "market-wide" component that spans across multiple trading venues. The results confirm an overall increase in liquidity co-movements within dollar volumes following the implementation of Reg NMS, supporting the idea of a contagion effect of trade-through protection on liquidity demand shocks. Meanwhile, bid-ask spreads see an overall decrease in liquidity co-movements, driven by a decrease in exchange-specific commonality. Hence, there is evidence for a smoothing effect on shocks to liquidity providers across trading venues under trade-through protection.