x Days of Isolation – Day 01: The Orderbook Strikes Back

x Days of Isolation – Day 01: The Orderbook Strikes Back

by Mark Montgomery, big xyt

Introduction

During these unprecedented times we do not underestimate the professional and personal challenges that everyone is facing. There are far more important things to be doing in the community than looking at a screen. 

However, data and data analytics is playing a critical part in providing solutions to the current global crisis. Furthermore, the markets remain open and whilst they do, the trading community needs to be well informed in order to understand the changing market landscape. As a result, big xyt is receiving an increasing number of requests for observations of changing trends and behaviours in the equity markets. We are excited to have recently expanded our London team to enrich our content and support for clients seeking greater market insights from an independent source. Whilst many adjust to the new experience of working from home we plan to share some of these thoughts, observations and questions in the coming days & weeks. 

As ever we welcome feedback as this can shape further contributions from our team and the Liquidity Cockpit our unique window into European equity market structure and market quality.

Day 01: The Orderbook Strikes Back

Since January 2018 market structure experts have been crouched over fragmentation microscopes pointing frantically at the slow migration of equity turnover away from lit order books and broker crossing networks(BCNs) towards first, periodic auctions then, new breeds of dark block trading mechanisms and then noticing the gentle rise of risk provision through systematic internalisers (although this is viewed by some as an elegant replacement for aspects of legacy BCN activity). The Closing Auction was the latest mechanism in the limelight, driven by ETFs, passive, traders and index funds, it seemed destined to be dragging the markets in Europe inevitably towards a single fixing per day. I am sure some would not have been against it.

Well, what difference  one quarter or even one month can make.

The chart shows that the share of trading on lit or central limit order books has recovered to 2017 levels at the expense of all other mechanisms. There are several reasons for this which we intend to dig into deeper in the coming days but the primary reason is immediacy. Lit books are the only way to guarantee a price when your focus is on implementation not benchmarks. Suddenly absolute performance has come in to sharp focus. We will expand on the implications of this behavioural shift and the pitfalls to avoid in comments to come.

If you find these pieces of analysis useful, you will find there is a lot more you can do with our Liquidity Cockpit. Clients using our Execution Analysis/TCA are able to measure execution performance with the demonstrated precision and flexibility.


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As ever we welcome feedback as this can shape further contributions from our team and the Liquidity Cockpit our unique window into European equity market structure and market quality.

This content has been created using the Liquidity Cockpit API.

About the Liquidity Cockpit

At big-xyt we take great pride in providing solutions to the complex challenges of data analysis. Navigating in fragmented markets remains a challenge for all participants. We recognise that the investing community needs and expects continued innovation as the volume of data and related complexity continues to increase.

Our Liquidity Cockpit is now recognised as an essential independent tool for exchanges, Sell-side and increasingly Buy-side market participants. Data quality is a key component, as is a robust process for normalisation so that like-for-like comparisons and trends over time have relevance. However, our clients most value a choice of flexible delivery methods which can be via interactive dashboard or direct access to underlying data and analysis through CSV, API or other appropriate mechanism.

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