Order Routing and Arbitrage Opportunities in a Multi-Market Trading Simulation

In this paper we introduce a simple model of multi-market trading. An identical security trades on two independent trading platforms. Prices and quotes are connected only by the strategic behavior of traders. The experimental design varies the degree to which traders monitor and act on information from both markets. We report on the degree of integration between the two markets as measured by the availability of arbitrage opportunities and the percentage of volume that trade throughs better quotes. Finally, we discuss the limits of integration with respect to our modeling assumptions.