Trading technology provider Fidessa has launched the Fidessa Fragmentation Index (FFI), which aims to provide traders with a way of measuring distribution of liquidity across Europe’s order-driven execution venues."
According to the firm, understanding how different stocks are fragmenting across Europe’s new trading venues is essential to implementing effective best execution strategies for both the buy- and sell-side.
“Everyone agrees that liquidity is moving away from primary venues but there is no industry standard way to compare fragmentation quickly and easily between different stocks, indices and venues,” said Steve Grob, director of strategy at Fidessa, in a statement. “This is exactly what we set out to achieve through the creation of the Fidessa Fragmentation Index.”
The FFI, which is calculated every day across all the constituents of the major European indices, provides a single number to show how a stock or index is fragmenting. The higher the number, the greater the fragmentation. An index value of 1 means that the stock is still traded at a primary exchange. An index value of 2 or more shows that the stock has been fragmented to the extent that it can no longer be regarded as having a primary exchange.
The FFI also shows the average number of venues that should be visited to achieve best execution when completing an order.
“The FFI for the FTSE 100, for example, has risen to a peak of 1.77 and some individual stocks are already breaking the 2.0 barrier on a regular basis,” said Grob. “It’s clear that the ability to seek out liquidity in an intelligent fashion, coupled with the ability to trade across multiple venues, is going to be key to successful operation in this market.”
The FFI covers the constituents of the AEX, BEL 20, CAC 40, DAX, FTSE 100, IBEX 35, MIB 30, OMX 30 and SMI indices. To present a complete view of a stock’s status, the FFI takes into account the total number of venues over which it is fragmented, and reflects, for example, the difference between a stock that is split 80:20 between a primary and alternative venue, and a stock that is split 80:10:10 between a primary and two alternative venues. It also enables changes in fragmentation to be plotted over time and allows comparisons in fragmentation to be made between different stocks and indices in real time and historically.