Remember ‘best price’ doesn’t always mean lowest cost
Another significant challenge for European market participants searching for best execution is that the best price does not necessarily correspond to lowest cost (when trading fees and clearing and settlement charges are included).
Equally, when looking to assess open position risk or calculate a “mark-to-market” price, the accepted method of using the FTSE or DAX intra-day and closing prices is not necessarily most appropriate in today’s markets. Looking at the post trade data, only 20-30% of the total volume of transactions are executed at the incumbent exchanges (from where the index information is generally derived), meaning the index price being used is – at best – a guide. Adding multiple currencies into the equation for many stocks simply confuses the issue further. Unfortunately, unlike the United States, European markets currently have no single consolidated price and no single benchmark method for determining one.
Creating a “virtual book” for greater market transparency
For firms who have purchased real time data from the Exchanges, Equiduct sees it as important to have a clear view of the individual venue market depths, the consolidated virtual book and optimal fragmentation. But what about the firms who do not have all this information available? Since April 2008, Equiduct has also been consolidating the visible pre-trade information gathered from the significant relevant markets into a “virtual book”, providing access to a single source of equity price data. The resulting benchmark, (we call OrangeVBBO) has been calculated from this book and the price has shown the consolidated true best price, mathematically derived from the full depth of the market for each instrument.
Equiduct has now decided to “step up to the plate” and create a Pan-European aggregated feed (by price), i.e. a consolidated tape. This provides market by-price real-time data feed without the venues names, pre and post-trade. All the orders with the same price are aggregated on a single line without the venues names displayed. This feed contains all the visible liquidity for any single stock, and addresses all the information-related needs of traders, compliance & risk departments and back or middle offices. This anonymous data feed is a derived data feed, and is therefore not subject to real time Exchange fees.
The last few years have been tumultuous for the financial markets, and this situation is unlikely to change for the next few years. Participants will continue to come and go, moving in and out of different markets, and adding new and ever more complex strategies to their trading capabilities. But with more new entrants into the execution venue space on the horizon, the requirement for a single consolidated tape will become more and more pressing for both the “sellside” and “buy-side”. I am looking forward to seeing how the various challenges being faced will be addressed, but believe strongly that a consolidated tape will become the European real-time liquid equities benchmark that is so often asked for and is so clearly needed.
Enabling transparency in an increasingly fragmented market : Addressing EMEA challenges with a more consolidated view
