Liquidity fragmentation is the condition in which the buyers and sellers of an asset, or the funds of an institution, are divided among many separate pools instead of meeting in one place. In securities markets it arises when the same share trades on several exchanges, a multilateral trading facility and in dark pools, so that each venue shows only part of total supply and demand. Competition between venues lowers fees, but a large order may have to be split, and prices can differ briefly between venues. Smart order routing and consolidated price feeds are the usual responses.
The term is also used elsewhere. In crypto markets, the same token is traded across many exchanges and blockchains. In payments and treasury, a firm's cash may be scattered across banks, currencies and countries, some of it trapped by local rules, which raises funding costs and is addressed through a cash pool or netting.