Buy- and sell-side market participants should look beyond Europe's established multilateral trading facilities (MTFs) in search of best execution, according to analysis by trading technology provider Fidessa. Data from the firm's FragINSIGHT tool reveals that niche trading destinations can capture significant market share, even in large cap stocks.
The report used Fidessa's Fragmentation Index, which calculates a single number to represent the degree of liquidity fragmentation in any individual stock or index, to compare execution outcomes across different trading venues. In particular, it distinguishes between first-generation pan-European MTFs such as Chi-X Europe, BATS Europe and Turquoise, and later niche-focused venues such as Burgundy, Equiduct and TOM MTF.
Equiduct, a pan-European retail-focused trading venue, for example, typically accounts for less than 2% of trading in constituents of the French CAC 40 index, but it has achieved a much larger slice of activity in specific stocks. For example, Equiduct has registered as much as 8% in the daily turnover of Alcatel Lucent, the communications technology provider.
Moreover, the platform's share of trading in French blue chips has been rising. Equiduct traded €1 billion of CAC 40 shares in June 2011, up from €500 million in February.
“Given the relatively small proportion of total activity attributed to retail trading compared with wholesale flow, Equiduct’s success is all the more evident,” the report noted.
Fidessa also suggested that venues such as Equiduct will continue to grow after MiFID II is introduced later this year, once better quality of market data gives its core client base – retail brokers and their customers – greater transparency and market confidence.