Competition in the exchange industry : An event study of the Nordic equity trading market

Abstract: This paper explores how the five largest trading venues in the Nordic region compete after theimplementation of MiFID in November 2007. I investigate: (1) if NASDAQ OMX’s market sharehas increased post the introduction of major changes to its market structure, and (2) how anexchange operator can attract equity share order flow in the near future. By applying event studiesto NASDAQ OMX’s market share over time, I find that introducing a faster trading system andadmitting a high frequency trading firm as a member both have a negative impact on NASDAQOMX’s market share. The reductions in market share can be explained by high frequency tradingfirms’ trading behaviour. Introducing central counterparty clearing has a positive effect onNASDAQ OMX’s market share, which highlights market participants’ appreciation of a securetrading environment, and confirms that it is not only posting the best bid and ask quotes thatattracts order flow to an exchange. It can be concluded that NASDAQ OMX in the future needs toaddress an important trade-off between total turnover and market share, as the two are not alwayspositively correlated.