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Say you want to execute a $30k trade in a $1bn mkt cap stock, around 0.2% of adv so not massive but not small. Would that be cheaper in the US (recognized as the most liquid stock mkt in the world) or in South Korea (which has a 10bp transaction tax)?https://www.linkedin.com/pulse/which-country-has-most-liquid-equities-market-alexander-gerko/ …
Surprisingly it doesn't make much difference -- you would pay ~25bp (or $75) in both markets, even with the transaction tax in SK. In Japan you would only pay 10bp ($30) to do the trade!
The difference is that US equity markets are fragmented (~13 different exchanges) whereas in South Korea everything trades on a single exchange, KRX
Even worse, in order to access that ~25bp liquidity in the US you need serious infrastructure like colocation for every exchnage, smart order routers, fast data feeds, aggregation, good execution algos etc (or you need to pay commission to a broker to use their algo)
In South Korea you just connect to one exchange and you're away. Even tick sizes tend to be bigger in South Korea which sounds bad for liquidity but in fact concentrates orders at fewer price levels, which reduces the advantages of being fastest and rewards market makers for
providing genuine liquidity, e.g. long-lived orders in the book to get queue position, and warehousing risk instead of flipping it to avoid paying the FTT multiple times.
I find the whole thing fascinating as an example of how US and European market structure could be massively improved, and as an example of how even a 10bp FTT doesn't necessarily reduce liquidity by that much (at least for small stocks ... bigger impact for more liquid names obv)
Pretty major issue with the analysis... Only Kospi equities trade at the lower (8bps not 10bps) transaction tax and Kosdaq equities are taxed at 23bps. Agree that Europe liquidity sucks. KRX is wholly owned by the Korean domestic IBs. Def ownership risk.
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