Equiduct, the pan-European equity trading platform, is expanding its data offering and launching a new liquidity fragmentation analytics service, OrangeLFA, to complement its OrangeVBBO consolidated feed product.
In the post-MiFID environment, trading on the relevant European execution venues has become increasingly fragmented. The top 500 stocks by volume are on average now traded on 5.6 venues. Within this new framework, there is an important and growing need not only to be able to trade at the best possible price, but also to measure the quality of execution against a reliable benchmark. Equiduct's OrangeLFA tool allows both the buy and sell-side, as well as the media, regulators and compliance departments of any trading firm to monitor the market on a consolidated basis using the available pre-trade liquidity data as published by all the relevant execution venues across Europe.
OrangeLFA clearly demonstrates that, at present, trades are not always executed at the most appropriate venue to gain best price and that a significant amount of order flow is misdirected. Analysis based on the OrangeLFA shows that a significant proportion of trades executed on, for example, the incumbent exchanges, should have been executed on an alternative venue. In many cases this would boost the market shares of the newly formed multi-lateral trading facilities (MTFs).
In January 2009 alone, Equiduct analysis indicates that €97bn of executed consideration could have achieved a better price on a different venue, representing 33.4% of total traded value across the 500 securities. If market share was allocated by the availability of best prices, then 13.4 % of pan-European market share would migrate from the traditional exchanges towards the new MTFs.
To aid participants quantify and monitor best price fragmentation across Europe, Equiduct will publish the Orange Liquidity Fragmentation Index (OrangeLFI) as part of the Liquidity Fragmentation Analytics suite. Using industry-standard methodologies, the index value will highlight how the availability of best price is fragmenting across Europe, and not just where trades are occurring. By contrasting the OrangeLFI value against its market-share equivalent it will be possible to analyse where liquidity has the potential to fragment; a key indicator of future fragmentation.
Storing up to 500,000 market data price updates per second, Equiduct has a robust, state of the art database which can be used for back-testing, replaying historical data, and calculating fragmentation and liquidity over different time periods. The OrangeLFA provides a trusted benchmark enabling users to ascertain execution quality and gain greater clarity on the performance of banks and brokers post trade.
"The market place has continued to evolve quickly over the last year with the creation of new trading venues. This has stimulated competition. But so far there has been insufficient focus on how to achieve best execution on the various available platforms," commented Artur Fischer, Joint CEO of Equiduct. "Our analytical tools show that the incumbent stock exchanges are letting Europe's investors down. And had the best price been achieved in the month of January on our sample of around 500 leading European stocks across the seven available platforms¹, buyers would have been able to save €30m on the prices actually paid".
Note¹: LSE, Xetra, Euronext, Chi-X, Turquoise, BATS, Nasdaq OMX