Abstract
We examine both displayed and non-displayed orders sent by all investors to the electronic central limit order book of the Italian stock exchange Borsa Italiana (BI). Extant literature relies on trades as basic level of observation for the lack of data. Our unique dataset enables us to reconstruct the evolution of the order book and trades over time. Trading costs are lower than in any other exchange analysed in the past. Rules on over-the-counter trading allow us to measure the economic impact of market fragmentation. Contrarily to the existing literature, we observe price impacts are lower in the electronic downstairs market than in the upstairs market. Our results suggest the exchange trading architecture more likely explain the higher trading efficiency in the electronic downstairs market, which then provide the ground to a more liquid and efficient market.