Outages on MTFs – Do They Matter?

Short Article(7 pages)

Background

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.

Chi-X Europe is of course a pan European exchange and trades in all the main European 'markets'. To simplify this note, we'll concentrate on what happened in three specific markets, UK, Germany and France.

UK Impact

The two graphs below show the volume traded in half hour periods on

• the 13th June
• the average intraday volume traded for the previous trading week (6-10th June 2011)

Screenshots from LiquidMetrix WorkStation

If we look at around the time of the outage (09:45 -> 10:30) we can see a 'bump' in LSE volumes in the left hand chart. Volumes for the second half of the day appear to be normal with Chi-X Europe having slightly less relative trading volume in the afternoon.

Looking at half hourly resting liquidity within 10 BPS of mid-point there is a slight deterioration in liquidity on the London Stock Exchange around the time of the outage. The second half of the day appears to be very much ‘business as usual'.

To get a clearer idea of what happened at the moment of the outage we need to drill down to look at higher frequency charts.

30 Second Drilldown - UK

The 30 second drilldown provides more detail around the outage event. The four graphs below show the value traded, order book messages, 50 BPS order book liquidity and €10,000 contract spreads on the different venues between the period 09:30 to 10:30 (UK time) across the four venues (LSE, BATS Europe, Chi-X Europe and Turquoise).

The higher frequency statistics show that the situation was a little more subtle.

• There is a spike in trading volumes and order book messages before the Chi-X Europe outage. It appears to start around 09:40, with high volumes trading on Chi-X Europe and other venues leading up to 09:45.
• Immediately after the Chi-X Europe outage there is a significant drop in order book liquidity (resting volume within +/- 50BPS) on the London Stock Exchange while the other two MTFs (Turquoise and BATS Europe) seem relatively unaffected.
• Spreads for a €10,000 aggressive order appear largely unaffected during the Chi-X Europe outage.
• The volume spike before the outage makes it difficult to analyse the effect on trading volumes. However, broadly speaking, the market share graph below indicates that all other venues (LSE, BATS Europe and Turquoise) saw a small increase in market share whilst Chi-X Europe was unavailable.
• After Chi-X Europe resumed trading its market share quickly (within about 10 minutes) recovered to normal values.

FTSE-100 intraday Market Share during 9 and 12 noon on 13 June 2011.

30 Second Drilldown - France

For French stocks, and other countries, the basic pattern is similar to that seen in the UK. The main impacts of the Chi-X Europe outage being a drop in resting liquidity on the primary market (the other two MTFs resting liquidity is seemingly unaffected) and an increase in market share for all other venues. The primary venue apparently takes the majority of Chi-X's market share.

30 Second Drilldown - Germany

Statistics for German stocks are shown below.

Summary of findings

• The outage appears to have occurred just after a spike in trading and market data volumes that was seen on all major venues.
• Overall, apart from a slight loss in resting liquidity close to mid-price on primary venues, the effect on liquidity/spreads was minimal on other venues.
• Apart from London, the primary markets appear to have benefitted most in terms of trading volume although it is hard to be precise due to the volume spike immediately preceding the outage.
• Within ten minutes of Chi-X Europe resuming operation, spreads, liquidities and market shares on all venues quickly returned to normal.
• Although Chi-X Europe represents close to 30% of the market value traded in some trading centers, the outage appeared not to have any dramatic impact on liquidity/spreads on other venues.

However, the drop in resting liquidity on the primary venues is interesting as it suggests that at least some of that liquidity seen on primary lit order books is tied in some way to trading activity on Chi-X Europe.