Agency broker Instinet has reported that its European smart order router technology was able to identify the best price in the market for UK stocks 99.9997% of the time, in a study by software and market data provider Intelligent Financial Systems (IFS).
The research examined trades conducted in March 2011; it concluded that the router, which accesses both dark and lit liquidity, provided an average of 1.12 basis points in overall price improvement and an effective spread reduction of 10%. Price improvement was defined as the difference between the Instinet execution price and the best quoted price at the time of the execution.
“Since many dark pools often execute at mid-point of the primary listing venue, there is price improvement versus the lit venues,” said Mark Holloway, client and product manager at IFS.
“For Instinet's trade set, we measured an average improvement of 1.12 basis points compared to the best price on the lit venues at the time of execution.”
IFS's LiquidMetrix WorkStation product suite, which was used to monitor Instinet Europe's performance, provides access to a multi-terabyte, consolidated, full-depth (Level 2) order book history covering instruments traded in Europe on primary exchanges, multilateral trading facilities or off book.
“The challenge is to access the best price at a precise moment in time,” explained Holloway. “We rebuild the consolidated European order book as it was at the time of the trade, so we can see whether the price achieved was the best available.”
With the Liquidmetrix WorkStation, Instinet Europe was able to analyse the performance of its trade flow on individual and multiple trading venues with millisecond granularity. The actual and potential price improvement for each executed trade using ”depth weighted' and ”touch' reference prices were measured.
“In a fragmented market, it's no simple feat accessing best prices – the more venues there are, the trickier it becomes,” Holloway said.