LiquidMetrix Research to Research Articles

From time to time we will be publishing short articles about Fragmentation, Market Quality, Transaction Cost Analysis and other general topics relevant to Smart Order Routing or High Frequency Algorithmic Trading.

Below is a list of articles we have published, we’re hoping to add a new one every month or so, so be sure to check back here. If you’d like to be sent an e-mail notification when we publish something new, send us a short e-mail to and we’ll add you to the notification list or sign up to the monthly newsletter, in which we list any new articles we publish.

01 Jun 2016    - Adverse Selection in traditional maker-taker and inverted venues
Henry Yegerman, Global Head of Business Development at LiquidMetrix, compares execution quality of maker-taker versus inverted venues in the US in terms of information leakage.

01 Dec 2015    - US and EU Best Execution: Common Challenges, Differing Approaches
Best Execution issues are similar globally but there have traditionally been different philosophical approaches in the US and Europe. Comparing the different approaches used is useful to clarify some of the underlying assumptions and issues for current and future best execution policy debates in both Europe and the US.

01 Oct 2015   LM025 - Detecting market abuse is about to get harder
The new Market Abuse Regulation (MAR) comes into effect on 3rd July 2016. This article examines how these new regulations will expand the remit of what types of market abuse firms will need to monitor and be held accountable for.

04 Jun 2015   LM024 - Benchmarking Passive Limit Orders
A key ingredient in most modern electronic trading algorithms is the effective use of passive lit limit orders. This article discusses how to effectively measure limit order performance.

14 Apr 2015   LM023 - LiquidMetrix / Neonet White Paper: Intraday auctions - Are your algorithms ready for them?
In this white paper, Neonet and LiquidMetrix review the midday auctions and in particular the announcement of London Stock Exchange to offer midday auctions from late 2015. With a contribution from Brian Schwieger, Head of Equities at London Stock Exchange.

12 Jan 2015   LM022 - How do you define toxicity?
A question that is posed more and more often on both the buy and sell side is how does one measure toxicity. This article explains the methodology behind the LiquidMetrix Counterparty Profitability Measure (CPM) and how much you could be losing to 'Toxic' counterparties.

03 Oct 2014   LM021 - Who is my peer?
Following any presentation to a buy side of the top line performance metrics in a TCA / Execution Quality Report , the natural question is 'so, is this performance good or bad?'. Absolute numbers for Implementation Shortfall or VWAP performance can be somewhat misleading and depend on what was the intention when placing the order in terms of urgency, strategy and underlying market conditions. LiquidMetrix introduces it's view on how one should define peer performance comparison.

02 Apr 2014   LM020 - What fuels your algorithms?
Modern execution algorithms are complicated, but Darren Toulson, head of research at LiquidMetrix offers a few guiding principles to designing execution algorithms that can fully realise their intended outcome.

24 Jan 2014   LM019 - TCA and MAD: Two Sides of the Same Coin?
Two recent hot topics for buy and sellside firms have been monitoring Execution Quality (TCA) and Market Abuse (MAD). This article looks at how they are inextricably linked.

14 Oct 2013   LM018 - LiquidMetrix Article: TCA - What's it For?
Done correctly, TCA can tell you many things about your current execution performance, including why your performance is good/bad and what you can do to improve it. Done poorly, TCA is something you run once a quarter, file away and forget about. So how can you best use TCA, what might your TCA be telling you and what kind of questions should you be asking of it? This article provides a summary of commonly used TCA measures and shows some practical examples of applying the TCA pyramid to improve execution performance.

25 Jul 2013   LM016 - Is Simply Achieving EBBO Good Enough?
In this article LiquidMetrix reviews the trading performance achieved by retail investors across different European retail trading mechanisms.

15 Apr 2013   LM015 - LiquidMetrix Article: Do HFTs Really 'Game' Buy-Side Orders?
In recent years, a significant part of liquidity provision and trading on lit markets, usually estimated to be around 40% of matched volumes in Europe, is conducted by 'HFT' firms. A common Buy-Side complaint is that the trading styles and strategies of HFT firms exacerbates the market impact of 'real' orders being sent to the market, making it difficult for them to access lit liquidity without being 'gamed' by faster HFT participants. Are these fears justified?

01 Mar 2013   LM014 - LiquidMetrix Article: Are You Making the Most of your TCA?
Most firms monitor execution cost and performance but, asks Darren Toulson, head of research at LiquidMetrix, what does TCA really tell you?

18 Feb 2013   WP003 - Bid Offer Dark Pools - A Free Lunch?
Some European Dark Pools have started offering matches at Primary market or EBBO 'touch prices'. We examine the pros/cons of using a BBO Dark Pool as opposed to sending aggressive orders to lit markets to determine if Bid Offer Dark Pools should be used as part of an aggressive SOR strategy that is looking for liquidity.

30 Jan 2013   LM012 - Comparing Nordic Dark Pools
This short article focuses on Nordic dark pool trades and how execution quality and characteristics differ between executions that occur on Bats Dark, Chi-Delta, Nordic@Mid and Turquoise Dark.

14 Dec 2012   LM011 - Can you hide in the dark?
MTF dark pools are playing an increasing role in European algorithmic execution strategies. In recent years the job of effectively executing large orders and minimizing impact costs has become ever more complex. Lit markets have fragmented, trade sizes decreased and a perception has grown that market impacts are being exacerbated by the strategies of heavily ‘quant’ HFT participants. One of the side effects of MiFID, apart from lit market fragmentation, has been the formation of a number of new ‘MTF’ mid-point matching Dark Pools. How might the presence of these MTF Dark Pools affect the choice of optimal execution strategy?

21 May 2012   LM010 - Spanish Fragmentation / Liquidity
Until the beginning of 2012 there had been little fragmentation in the trading of Spanish equities. However, from February 2012 and accelerating more recently in May we have seen a small but significant amount of trading beginning to occur on MTFs (BATS/CHIX/TRQX) and a corresponding improvement in the quality of the liquidity (spreads/depths) resting on the MTFs. This article examines the recent Spanish fragmentation in more detail.

28 Jun 2011   LM008 - NYSE Euronext June 2011 Outages
Over a two week period, NYSE Euronext suffered a series of technical outages affecting various parts of its cash trading. The outages were of different durations, at different times of the day and in the case of the last 2 outages, affected only some segments of NYSE Euronext's cash trading universe. This article looks at each of the outages concentrating on high frequency trading volumes, order book depths and spreads before and after the outages.

18 Jun 2011   LM007 - Outages on MTFs – Do They Matter?
Chi-X Europe suffered a technical outage lasting approximately 30 minutes on the 13 June 2011. The event started at around 09:45 and was resolved by 10:15 (UK time). LiquidMetrix has previously published articles analysing the impact on trading volumes and spreads/liquidity in cases where a primary market has been 'down' so it's natural, given this event, to ask what is the impact on the primary market and other MTFs when the largest European MTF is unavailable.

01 Apr 2011   WP002 - What price for a dark pool?
Many dark pools use the mid price of the primary exchange as the external reference price at which to match buyers and sellers. There has been a lot of interest recently in how suitable this primary market mid price is as a fair reflection of the current overall market price and there is some concern that when market prices move quickly and / or when order book volumes on the primary market are relatively thin, it might be possible to ‘game’ the primary mid price. Allied to this are suggestions from some market venues and participants that reference prices other than the primary mid price might also serve as a fair price to match buyers and sellers in a dark pool.

This paper presents a study into both how 'good' the primary market mid-price is as a fair reference price in a fragmented lit market and also, what the impact would be of using alternative reference prices.

01 Mar 2011   LM006 - How important is the Primary Market (LSE 25th February, 2011 outage)?
In the last week of February, 2011 both Borsa Italiana and London Stock Exchange suffered technical outages that lasted for several hours. Being primary markets this had an impact on not only trading in general but also on the behaviour of the MTFs in particular. In this article we analyse, minute by minute, the extent of this impact and also compare the trading pattern during the two outages.

15 Dec 2010   LM005 - How Has Turquoise’s Order Flow Changed post MIT?
In early October 2010, Turquoise switched to using the new ‘MIT’ matching engine. This is the same technology platform that the LSE is scheduled to move its main markets onto early next year. One of the immediate effects of the upgrade saw Turquoise go from having one of the slower MTF matching engines to, according to Turquoise, having the fastest with reported sub 150 microseconds processing speeds.

So what impact might this speed increase have had on the type of order flow that Turquoise receives and its market share in different types of stock?

20 May 2010   LM004 - Do UK Retail Investors Get a Good Deal Trading Off-book?
A large proportion of trades executed by ‘retail’ investors in the UK occur off-book. Retail trades are generally quoted and executed on networks of liquidity providers commonly called ‘RSPs’. There has been considerable discussion recently about how well the orders of retail investors in Europe as a whole are being exposed to ‘the market’. In this article we present detailed objective results looking at how the off-book trade prices being obtained by retail investors in the UK compare to Europe wide best on-book prices on LSE and the MTFs. We examine some 140,000 retail trades worth just under almost £1BN reported to PLUS.

This article is a synopsis of a longer White Paper we have produced.

To request a free pdf copy of the 13-page White Paper: 'Retail Off-Book Trading in the UK', please send an email to

10 Feb 2010   LM003 - What kind of stocks fragment
About 20%-40% of trading in the more liquid European stocks now happens away from the Primary Venues like LSE and Euronext. However, the degree of fragmentation seems to vary not only on a country by country basis but also on a stock by stock basis. In this article we look at what ‘kinds’ of stock seem to fragment the most, i.e. how might the level of total trading activity, price volatility, ticks sizes in a particular stock affect the degree of fragmentation. Also, are individual MTFs more or less successful in capturing market share in certain kinds of stocks.

07 Dec 2009   LM001 - What was the impact of the LSE outage on Thurs 26th Nov 2009?
The LSE had a fairly prolonged technical outage on November 26th, 2009. This article examines what happened to trading activities on each of the MTF venues immediately after the outage and over the period of the outage. The general answer is that trading activity was very low during the outage but there was some reasonable spreads / liquidity offered on some of the alternate venues, read the article for more details.


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