Equiduct Trading, a pan-European equity trading venue, has launched a suite of analytical tools which, the firm says, demonstrate that many trades sent to incumbent exchanges are not being executed at the best price available.
Orange Liquidity Fragmentation Analytics (LFA) is a post-trade analytics tool that locates the best price for the 500 most traded stocks in Europe across seven trading venues. The venues include the London Stock Exchange (LSE), Chi-X, BATS Europe, Euronext markets in Amsterdam, Belgium and Paris, Xetra, Turquoise and Nasdaq OMX Europe. Equiduct’s own trading venue is due to go live Q1 this year.
OrangeLFA’s results from January show that 25.7% of trades executed on the LSE could have been conducted at a better price on an alternative venue. Of this 25.7%, Equiduct’s analysis suggests that 61% should have been directed to Chi-X, 28% to Turquoise and 9% to BATS.
If all January orders for Europe’s 500 most-traded securities been executed on a strictly best-price basis, OrangeLFA shows that Chi-X would have won a pan-European market share of 22.8% (up from an actual 14%), higher than NYSE Euronext (22.5%) and just behind the LSE (25.9%).
OrangeLFA works by calculating a theoretical stream of orders, which represent observed trading pressures such as price and depth of liquidity. The stream of orders is then replayed against historic consolidated order book information to determine the best price for that order. The product is available free of charge.
“Our analytic tools show that the incumbent stock exchanges are letting Europe’s investors down,” said Artur Fischer, joint CEO, Equiduct. “Had the best price been achieved in the month of January on our sample of 500 European stocks across the seven available platforms, buyers would have been able to save €30 million on the prices actually paid.”
Another new service, the Orange Liquidity Fragmentation Index,
reflects the level of fragmentation that would take place in Europe’s trading venues if all trades were conducted at best price. According to Equiduct, this can be used in conjunction with the Fidessa Fragmentation Index, a measure of how liquidity is distributed across trading venues and indices, to conduct trend analyses.
Equiduct is also in the final stages of developing a web-based market replay tool that allows investors to find a trade they have executed and compare it against combined volume information in a consolidated order book. This will allow traders to see where the best price was for specific trades at a specific time and is expected to be available in the second half of March.