We develop a model of an order-driven exchange competing for order flow with off-exchange trading mechanisms. Liquidity … additional trade demand. We show, in equilibrium, hiding trade intentions can induce mis-coordination between liquidity supply … in prices and order flow after periods of high excess-supply of hidden liquidity. …

placement. We introduce the concept of a liquidity elasticity, measuring the responsiveness of liquidity demand with respect to … changes in liquidity supply, as a major driver for a declining price impact per share. Empirical evidence based on Nasdaq … stocks strongly supports theoretical predictions and shows that the aspect of liquidity coor- dination is an important …