Direct Edge CEO plays down market share dip

Recent month-on-month falls in the market share of Direct Edge, a US equities trading platform, are a temporary blip, according to CEO William O’Brien.
By None

Recent month-on-month falls in the market share of Direct Edge, a US equities trading platform, are a temporary blip, according to CEO William O’Brien.

Direct Edge’s handled market share, which includes all trades executed on Direct Edge’s two order books and through its Enhanced Liquidity Provider programme, plus any orders routed to external markets, was 8.49% in October, down from 9.63% in September and 10.8% in August. The firm’s matched market share, which excludes the onward-routed trades and certain volume executed through the Enhanced Liquidity Provider programme, fell to 4.95% in October from 5.44% in September and 5.69% in August.

But O’Brien thinks the dips are insignificant. “With August versus September you’re looking at a few hundredths of a point, and we don’t put a lot of stock in the October number,” he told “It is like trying to measure changes in wind speed during a hurricane. There was so much going on in the market at large and Direct Edge over that period that it is not reflective.”

In October, stock markets continued to experience high trading volumes and volatility as a result of the chaos in the finance sector. And on 24 October, Direct Edge started displaying its quotations on the ISE Stock Exchange rather than the National Stock Exchange, where it had previously posted them. “That type of transition usually requires a little bit of adjustment on behalf of our customers and I’m sure for a couple of weeks that may have impacted things a little bit,” said O’Brien. Direct Edge and ISE Stock Exchange, a unit of the International Securities Exchange, are merging – a transaction scheduled for completion by the end of this year.

A more accurate measure of Direct Edge’s performance, according to O’Brien, is its market share growth over the longer term. The handled and matched market shares from October 2008 of 8.49% and 4.95% are up from the 7.88% and 3.69% reported in October 2007. For the first half of the year, said O’Brien, Direct Edge was the fastest growing trading platform in terms of matched market share among the ‘big four’ US venues – The New York Stock Exchange, Nasdaq, BATS and Direct Edge.

He added that market share in November so far is higher than October – at 10.10% for handled and 5.49% for matched trades. As a result, O’Brien said, the recent dip in market share “will not cause us to do any fundamental re-evaluation of the path our company is on strategically.”

O’Brien predicted that competition among US equities trading platforms will heat up. “While the emergence of a fifth entrant is probably unlikely, you are going to see a protracted period of competition between the big four players,” he said. “That’s what we’re preparing for.”

Trading on Direct Edge’s two order books, EDGA and EDGX, is now possible through trading technology provider SR Labs’ Low Latency Order Management Systems (LOMS). Through LOMS, users will be able to receive the Direct Edge book feed and have access to all the platform’s products and services.