TRADING VENUES

FCA finds execution quality on LSE, Bats and Turquoise has improved

UK equity market execution has seen marginal improvement, according to equity trading venue analysis by the FCA.

By Hayley McDowell hayley.mcdowell@strategic-i.com November 02, 2016 1:25 PM GMT

The Financial Conduct Authority (FCA) has concluded from a recent study that execution quality on major UK equity trading venues has improved since 2012.

The study focused on the trading of FTSE 100 shares on venues like the London Stock Exchange (LSE), Bats Europe and Turquoise between 2012 and mid-2015.

It said the scrutiny of volume, quoted spread, effective spreads, price impact and quoted depth, painted a “broad picture” of improved execution quality on UK equity markets.

Quoted spread on the LSE declined approximately 9.9 basis points due to greater competition for order flow and more integrated electronic markets.

The FCA said: “All else being equal, lower spreads are good for market users and represent a decline in one of the explicit costs of trading.”

The analysis of price impact showed the LSE, Euronext and the New York Stock Exchange all saw a drop between 2012 and 2015.

Price impact attempts to measure the ease with which a trader can buy or sell larger blocks of shares on markets.

“The lower the impact a large trade has on the price, the better the execution quality,” the report said.

The FCA concluded without listing possible theories behind the improvement in execution quality, as changes to market structure, technology and interest rates could all have had an impact.

“But greater competition for order flow – both from the trading venues and market participants – has certainly played a significant role in the changes over the past decade.”