Equiduct, a pan-European equity trading platform, has updated its Orange Liquidity Fragmentation Analytics (OrangeLFA) tool to include the execution fees of the trading venues it analyses.
The tool previously calculated which European trading venues liquidity should be directed to according to prices found on their order books. It found that incumbent exchanges do not always provide investors with the best price. For example, in January 2009, OrangeLFA found that 31.1% of orders on Xetra, the Deutsche Börse’s electronic order book, could have been executed at a more favourable price on a different venue.
The tool has now been upgraded to include the cost of execution, which Equiduct says will help market participants support their best execution policies.
OrangeLFA found that incumbent exchanges fared worse when execution costs were taken into consideration. For Xetra, the new percentage of orders that could have been executed at a better price rose to around 37%, while this figure for the London Stock Exchange nearly doubled to 51% using the new methodology from 25.7% using the old.
However, the same was also true for MTFs, which missed the best result for clients in 20% to 34% of all cases.
“MiFID has been created to give clients the best possible result when trading securities in Europe. Therefore it was only logical to also open the market to MTFs, thereby stimulating competition between trading venues for the benefit of clients,” said Artur Fischer, joint-CEO, Equiduct, in a statement. “As a consequence, fees dropped and still are decreasing. Therefore, fees have become an even more important factor when analysing where an execution should have taken place for the benefit of the client.”