Do we need a European 'National Market System'? Competition, Arbitrage, and Suboptimal Executions

The introduction of the European Markets in Financial Instruments Directive (MiFID) ended the quasi-monopoly of national exchanges in equity trading across Europe and many new trading platforms emerged. European trading venues are neither formally linked by technology nor does regulation enforce price-priority across platforms. This raises the question of market integration of fragmented markets. We find that quotes for UK blue chips are closely linked across trading venues and that a high fraction of trades is executed at best available prices. Our results suggest that competition forces competing but disconnected platforms to quote prices as if they were formally linked.