The total cost of trading Belgian shares: Brussels versus London

Since 1990, London's SEAQ International (SEAQ-I) has attracted considerable trading volume in Belgian equities. This paper investigates competition be tween the Brussels CATS market and London's SEAQ-I. Toward this end, we gat hered extensive limit order book data as well as transactions and quotation information. With regard to liquidity (indirect costs), measured by the qu oted and effective bid-ask spread, the paper concludes that CATS outperform s SEAQ International for both measures. The effective spread is of course s ubstantially smaller than the quoted spread, with the CATS effective spread showing a U-shaped form. This paper, unique in employing an extensive data set that includes all hidden orders and the whole limit order book, produc es results in line with the different market microstructure models. Total t rading costs on CATS are lower (higher) for small (large) trade sizes. (C) 1999 Elsevier Science B.V. All rights reserved. JEL classification: G15.