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Abstract
The importance of the twin objectives of market quality (market efficiency and market integrity) as facilitators of market confidence is a fundamental condition for the success and continued use of a trading venue. Changes to market design are intended to improve market quality. Thus, in the wake of the European regulatory change MiFID, the inability to compare and contrast newly competing markets to the market fundamental, Market Quality is of concern. This dissertation addresses this deficit by defining, measuring and analysing market quality in a European equities context. We assess market efficiency via spreads, price impact and price discovery, amongst the direct and indirect competitors of NYSE Euronext Paris, our case market. We reveal that efficiency has improved in the last decade across all stock deciles, with index stocks the most efficient. We as only a few documented studies, gauge the extent to which market integrity is upheld in a marketplace enabling the assessment of market quality in its entirety. In developing proxies for insider trading (information leakage) and market manipulation (dislocation of the closing prices), we reveal that differences in market design play a pertinent role in managing and preventing prohibited trading practices. With a strong focus on price discovery, for the first time this dissertation assesses the entrance of competition to both the lit (transparent) and opaque markets. We find that the introduction of competition enhanced efficiency and integrated financial markets despite the reduction in transparency. We provide insight into new trading participants, High Frequency Traders, and their role in price discovery. In discussing opacity we identify the concerns of trading participants and expose Dark Pools as the markets response to reduced opaque uncertainty. Overall this dissertation emphasises the importance of market design and how it impacts market quality. We express how the introduction of competition directed financial markets from being monopolistic companies, to innovative technology incubators with strong investor awareness; a means to maintain market share and achieve needed profits. Importantly, the proxies developed are portable across markets. Their application will aid the decision making process of policy-makers, and benefit market participants and regulators in assessing the quality of the financial markets.