The FIX Trading Community has unveiled new business standards covering definitions of addressable liquidity in a bid to clarify the markets’ understanding and consolidate conflicting perceptions.
FIX members found in their discussions that the term ‘addressable liquidity’ is empirically construed differently between market participants depending on the scenario under consideration.
In answer to this, FIX split the types of addressable liquidity into four subcategories in its European equities addressable liquidity document: Interactable liquidity, multilateral liquidity, multilateral “lit” liquidity, and multilateral “lit” liquidity excluding frequent batch auctions.
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The definitions – agreed by the FIX equities consolidated tape working group – includes details “both in terms of a brief description and by way of trade category scenario analysis. It also provides details of how each of these definitions may be ‘constructed’ using data available on post-trade feeds, e.g., trade flags, venue identifiers and similar.”
The first category, ‘Interactable Liquidity’ relates to all executions undertaken on trading venues, as well as trades brought onto a venue that are considered to be ‘price forming’, and SI/OTC activity excluding ‘technical’ trades.
The ‘Multilateral Liquidity’ refers to multilateral executions undertaken on trading venues and excludes negotiated trades and bilateral services.
‘Multilateral Lit Liquidity’ encompasses those multilateral executions which are undertaken on trading venues “where at least an aggregated indication of volume and price is made available on public data feeds”.
Lastly, the ‘Multilateral “Lit” Liquidity’ is the subset of multilateral ‘lit’ liquidity which excludes activity resulting from frequent batch auctions.
Aside from outlining these types of addressable liquidity, the document highlights different use cases and maps these to different trading styles.
Specifically, the several liquidity scenarios address activities pertaining to those ‘traded on venue’, ‘brought on venue’, and ‘off-venue’.
Elsewhere, The FIX Trading Community made clear that when it came to duplicate trade handling – trades that are considered to be cross-border duplicates, should not be included in these definitions of addressable liquidity, which avoids any double-counting of liquidity.
Speaking in an announcement, FIX said: “The lack of such standards has been a problem for the industry for many years, and improvements to post-trade transparency driven both by UK/EU regulators and FIX’s own recommendations make it possible to create these.”