NYSE Euronext boasts higher liquidity quality than MTFs

Exchange group NYSE Euronext has claimed that its European equity markets offer superior liquidity over pan-European multilateral trading facilities (MTFs).
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Exchange group NYSE Euronext has claimed that its European equity markets offer superior liquidity over pan-European multilateral trading facilities (MTFs).

According to a new analysis conducted by the exchange group and transaction cost analysis provider TAG Audit, NYSE Euronext's cash markets in Paris, Brussels, Amsterdam and Lisbon offered liquidity at the European best bid and offer (EBBO) 84.6% of the time in April 2011, up from around 65% in January 2010. Displayed market depth, i.e. an average of the value of liquidity across the blue-chip stocks on NYSE Euronext's cash markets, was €44,798, while spreads were 7.66 basis points on average in April.

The next best venue, pan-European MTF Chi-X Europe, offered liquidity at the EBBO for 64.34% of trading hours during April, with a displayed market depth of €28,179 and an average spread of 9.43 bps. BATS Europe, the MTF that has agreed to buy Chi-X Europe, and London Stock Exchange-owned MTF Turquoise had a ”presence time' at the EBBO for NYSE Euronext stocks of 44.04% and 48.95% respectively, with each having a displayed market depth of just under €19,000. Average spreads were 15.68 bps for BATS Europe and 13.23 bps for Turquoise.

“The measures of market quality represent a tangible measure of execution costs and is something brokers should be aware of in their pursuit of best execution,” Lisa Dallmer, COO, European cash markets, NYSE Euronext, told theTRADEnews.com. “The analysis suggests that during periods of high volatility and low volumes, people want to congregate where market quality and liquidity are highest and this tends to be a self-reinforcing cycle.”

According to data from Thomson Reuters, monthly European cash equity trading has only surpassed the €1 trillion mark on two occasions since January 2010, as volumes struggle to return to pre-crisis levels.

Dallmer also cited the variety of trading participants for the levels of liquidity offered on NYSE Euronext. “We have spent a lot of time engaging retail, proprietary and institutional traders – in terms of offering new tools, order types and continually improving speed and capacity of our trading platform – which has helped us diversify the order flow on our books,” she said, adding that NYSE Euronext currently has over 280 members. “We also don't have any conflict with our shareholder base also being members, which is a problem most MTFs must face.”

Dallmer said that the introduction of a supplemental liquidity provider (SLP) programme had further boosted execution quality since its launch at the start of April. Under the scheme, specialist market makers provide additional liquidity in constituents of blue-chip indices across the group's four European equity markets.

To qualify as an SLP, NYSE Euronext members must adhere to a number of criteria including: maintaining a presence on both sides of the order book for a specific basket of stocks for at least 95% of continuous trading; offering prices based on a NYSE Euronext-derived best bid or offer for at least 10% of the time; and a minimum order size of €5,000.