We use a natural experiment, consisting of asymmetric changes in the fees charged by Euronext Amsterdam to the submission of market and limit orders in 2004, to improve our understanding of the formation of liquidity in limit order books. Counter-intuitively, changes in order submission fees are not found to impact trading volumes, although they are economically substantial. We however show that order fees impact the liquidity of the market. This result suggests that limit order books have a flavor of two-sided markets.
March 2009, revised May 2010