Battle Stations

Had a couple of productive (and fun) days at TradeTech Europe last week. The Fidessa airship flying round the exhibition hall served as a good reminder to everyone that the switch by the LSE Group onto its spangly new Millennium Exchange platform is fast approaching. This new matching engine will also be powering the LSE’s own MTF, Turquoise, which will be going live ahead of the LSE main market in September.

Last week also saw the LSE Group introduce a revised pricing scheme that aims to support the HFT community. BATS moved quickly to try and shoot holes in this by pointing out that it was only a few months ago that the LSE ditched a similar scheme in favour of the wholesale trading community. Whilst BATS may well have a point, it seems to me that every business is perfectly entitled to amend and change its business model as it sees fit. In fact, the LSE was often criticised in the past for not moving quickly enough in terms of introducing new initiatives or reacting to market changes. Now that it is prepared to be a more nimble player, it becomes a far more formidable participant in the battle for European liquidity.

A quick look at the Fidessa Fragulator, however, will show you just how high the stakes are. Prudential and A. B. Food were the two most fragmented FTSE 100 stocks last week.

More interesting still is the fact that nearly 5% of A.B. Food stocks were traded on dark venues last week. The importance of effectively navigating dark liquidity was made by Instinet’s own Richard Balarkas during his TradeTech presentation. This is particularly important because, counter to what the chaps at MiFID would have you believe, the difference in order size between lit and dark trade sizes isn’t actually that great (the average trade size for A.B Food last week was 510 for lit and 651 for dark). What this means is that the interaction of lit and dark trading is going to become a key stronghold as both types of venue seem to be covering pretty much the same territory in terms of order size.

Whatever the outcome, the events of last week were a good example of the old axiom that all’s fair in love, war and liquidity.