Multilateral trading facilities (MTFs) have captured around a quarter of trading in European stocks and now provide a viable alternative to primary exchanges, according to new research from broker CA Cheuvreux.
In ‘Navigating Liquidty 2’, CA Cheuvreux ranks Chi-X as the best MTF for posting liquidity and bid/ask spread quality, with BATS Europe, a US-exchange-backed MTF, considered a “serious” competitor.
The report also found that some execution venues are more effective for trading the components of main indices due to their focus on providing liquidity in large market cap stocks. According to Cheuvreux, this highlights the importance of defining specific rules for each stock’s smart order routing strategies.
“This report highlights the importance of identifying the market conditions that drive different execution venues in order to efficiently source liquidity. In our view, investors should consider using MTFs not only to take liquidity aggressively, but also when they act as liquidity providers,” said Ian Peacock, global head of execution services at CA Cheuvreux.
In addition, Cheuvreux has teamed with execution analysis provider TAG to launch Market Indicators, a new monthly report that provides clients with liquidity benchmarks designed to identify the most appropriate trading venues for best execution. The document analyses the performance of Chi-X, Turquoise, Nasdaq OMX Europe, BATS Europe and the primary markets for the AEX, BEL20, CAC40, DAX, FTSE 100 SMI and EUROSTOXX50 indices. The venues are assessed using criteria including intraday market share, average daily number of trades, average trading size, volume weighted average spread and auction liquidity.
Three other indicators – coverage, percentage of time at best bid and offer, and percentage of time at best bid and offer with greatest size – are intended to allow firms to verify the quality of a venue’s offered liquidity and provide clues on how to mix venue use.