LiquidMetrix Research 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 liquidmetrix@if5.com 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.

28 June 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 June 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 April 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?

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 liquidmetrix@if5.com.

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.

LiquidMetrix Research Research Articles

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