The impact of the results of the UK General Election on market volumes was dramatic, with UK volumes more than doubling. We looked more closely at how the underlying venues and mechanisms benefitted in relative terms. The left hand side of the chart shows the volumes traded on Friday by mechanism. The right hand side shows the percentage increase by mechanism compared to the previous day. Market participants needed to react quickly to position themselves. This can be clearly seen with the opening auction having the greatest change relative to the previous day. Second were the Large In Scale and dark venues. Under these conditions, different strategies are necessary for speed of implementation and access to significant blocks of liquidity. The mechanism least affected was the closing auction. This raises interesting questions about what has driven the growing popularity of the Closing Auctions at the expense of the rest of the trading day.
Price movement after a trade or reversion can be used as a measure of toxicity, aggression, or stock price sensitivity. Today we are returning to our example of LSEG both as a bidder and a target. The metrics we are using relate to price movement in two key trading mechanisms; lit & dark.The bottom chart shows traded value in the stock and helps us to pinpoint the days when the respective news stories broke. The top chart shows the price movement (absolute change of the mid price within 1ms) for every trade aggregated up as a daily average. This would seem to indicate greater stock sensitivity at times of increased turnover. However, look closer and when comparing lit and dark we see that the summertime Refinitiv announcement resulted in increased dark sensitivity in advance of the lit peak, whereas for the September HKSE approach the peaks are simultaneous.
Just as market share and trade size give us measures of market quality for lit markets, similar metrics can be applied to periodic auctions. The overall share of periodic auctions as a mechanism has been remarkably stable over the last year but the share and average size amongst the various operators have been changing. Today we take a snapshot of the most recent monthly picture. Note that in this example we have excluded on-demand auctions, offered by some primary venues. Our Liquidity Cockpit allows the identity of these venues to be revealed to enable you to ask if you are sourcing the best liquidity, at the best price, by market, by venue, by index or at stock level. — Do you want to receive future updates directly via email? Use the following
We have demonstrated in previous posts that there is a correlation between spreads and market share. The venue with the highest turnover tends to have the best prices. However, as the regulators keep reminding us, best execution should factor in liquidity as well as price. In the chart today we take a look at one European market and find that the rankings for turnover do not always match the rankings for available liquidity at the touch across the anonymised venues. Our Liquidity Cockpit allows the identity of these venues to be revealed to enable you to ask if you are sourcing the best liquidity, at the best price, by market, by venue, by index or at stock level. — Do you want to receive future updates directly via email? Use the following
MiFID I opened the door to exchange competition in Europe. Whilst the central limit order books of the exchanges have seen their monopolies challenged, one area has remained the domain of the primary exchanges. However, with increasing focus on closing auctions driven by passive investing and ETFs, it is not surprising to see innovative attempts to provide alternative means to deliver execution at the closing price. Many exchanges already support a post trade phase (Trading at Last) sweeping up remaining interest once the price has been established. Aquis and Cboe have recently introduced their own twist on the Primary mechanisms. Today’s chart shows that investors looking for liquidity at the closing price need to be aware of the growth of alternative mechanisms (shown in the inset), and taking the example of Total we see growth overall and in the monthly peaks traded
Liquidity on lit order books is driven by pre-trade transparency. Therefore, tighter spreads or deeper visible liquidity can lead to market share growth on one venue at the expense of another. Alternative mechanisms also play their part in particular circumstances. Take the example here where major news on two occasions throughout the year caused a basis change in the price of the London Stock Exchange Group (ironically the owner of three major European Equity venues). Traders noting a new price level wanted to trade and trade in size. With the news leading, to increased activity, the fragmentation of liquidity changed in a somewhat unexpected way. Market Share in lit books and block volumes increased dramatically compared to other mechanisms. Of further note was that this increase persisted in block venues, not just for the duration of the day of the announcement but for subsequent days until matched block liquidity was exhausted at that price level.
big xyt shares independent insights on European trading derived from a consolidated view on cash equity markets. The measures covered below are used as a reference by exchanges, brokers and buyside firms, reflecting answers to relevant questions occuring in the post-MiFID II era. The methodology is fully transparent and applied to tick data captured from all major venues and APAs (Approved Publication Arrangements). During the first half of 2018, market participants and observers are continuing to evaluate the changing liquidity landscape of European equities. One of the key questions this year is around the introduction of a ban on Broker Crossing Networks (BCNs), thereby outlawing the matching of a bank or broker’s internal client orders without pre-trade transparency for the rest of the market. Would this ban effectively force BCN activity onto the lit markets (public exchanges), as intended by the regulator with its desire to maximise the transparency of all orders, both pre- and post-trade,
Over the past five years, the pace of change in the European equities and ETF markets has been almost unparalleled. This in turn is fuelling demand from the buyside community for greater transparency in the form of data and metrics in order to achieve best execution, optimise their trading activities and ultimately make better informed decisions. Yet obtaining the quality of detailed, reliable and completely independent data required to analyse market structure changes has created its own set of additional challenges, not only for the buy-side and sell-side, but also for exchanges, trading venues and even policy makers and regulatory bodies. For many, the idea of a ‘consolidated tape’ is often the first solution that springs to mind. But would it be the panacea that firms seem to expect?
For participants in the European equities markets, the use of smart measures around price movements before and after each trade can help to better inform execution decisions, and therefore optimise and improve execution quality. By capturing every tick in the market for each stock across all venues, we can see how a share price moves before and after each trade. In normal circumstances, most liquid stocks can be expected to trade at least once within a five-minute period, certainly it is likely that a movement will occur in the bid or ask and therefore the midpoint. We can measure either the percentage likelihood of a move within the time period or the magnitude of the price change in basis points at a given interval.
When navigating through the complexities of European equity liquidity, one could be forgiven for wondering whether, for many market participants, the changes in regulation brought about since January 2018 through MiFID II have been a help or a hindrance. MiFID II was designed to introduce more transparency. But have aspects of it made the markets more opaque? One example is around the proliferation of Systematic Internalisers (SIs). Although this category of market participant was actually introduced under MiFID I, it has only really seen greater adoption since MiFID II outlawed Broker Crossing Networks (BCNs) and in so doing blocked the systematic matching of client to client orders. The SI regime created an alternative way for investment banks to match proprietary
