Posted by: Ian Rycott , February 16, 2016

FRAGMENTATION IN EUROPE.

LiquidMetrix analyses consolidated performance figures for stocks on major European indices and the changes from the previous quarter.

The charts and figures below are based upon LiquidMetrix’s unique benchmarking methodology that provides accurate measurements of trends in market movements. Trading volumes on lit markets including auctions are taken into account, as well as dark trading on the major MTFs.

MARKET SHARE – Based on fragmented European stocks.

European MTF market share, which has been gently rising over the last 12 months, accelerated upwards in the last quarter of 2015. The current MTF market share number of 33.46% is the highest we have recorded.

Overall Market Volumes eased slightly following a spike earlier in August 2015 and are now back closer to 2014 volume levels.

SPREADS & EBBO LIQUIDITY – Based on fragmented European stocks.

Top of the book bid / offer spreads widened slightly in Q4 2015 however the trend was largely flat. Average spreads for the second half of 2015 are nearing historic lows and are several basis points tighter than in 2012/2013.

Be31_IFS-Fig.4of10 On book liquidity was slightly lower. It’s interesting that liquidity is similar to levels in 2012 but spreads are tighter indicating that books are tight but ‘thin’.

EUROPEAN MARKET BREAKDOWN – Major European indices.

All European primary markets, with the exception of Germany, lost market share in Q4. The most significant shifts were in the UK (nearly 5%) and Switzerland (over 2%).

The MTFs all gained from this, CHIX more so than others.

BATS continues to enjoy a large market share in SMI stocks and maintains its second place.

TRQX performed particularly well on French and Swedish stocks gaining significant market shares in both.

Be31_IFS-Fig.5of10

Be31_IFS-Fig.6of10 There is a mixed picture across different markets for top of book spreads. UK stocks had narrower spreads across all trading venues apart from Equiduct, whereas French and German top of book spreads generally widened.

CHIX now has tighter spreads on both FTSE 100 (where it gained significant market share this month) and CAC-40 and is in a virtual tie with Deutsche Börse in Germany.

Turquoise saw a significant tightening of spreads on SMI, MIB and OMX-S.

Be31_IFS-Fig.7of10

The trend for depth weighted spreads was more varied though SMI and OMX-S both also showed loss of liquidity further down the order book.

It’s interesting to note that CHIX’s position in UK, France and Germany is firmly second behind the primary venues. So although CHIX is equal to or beating the primary venues at top of book, the primary venues still prevail having tighter spreads with larger order sizes.

Be31_IFS-Fig.8of10

Resting order book liquidity changes was slightly lower on primary venues in Q4 2015, with the exception of the MIB. The most significant reduction in liquidity was on the CAC across all venues, and to a less extent on the DAX.

Conversely, the MIB increased liquidity across most markets almost to the same extent as the reduction on the CAC.

LIQUIDMETRIX VOLATILITY INDICATOR – Based on fragmented European stocks.

Be31_IFS-Fig.9of10 The LiquidMetrix Volatility Indicator provides a measure of high-frequency market volatility based upon 30 second price movements.

Volatility which spiked up to the highest levels seen in recent years in August 2015 calmed down again in the final part of 2015.

Be31_IFS-Fig.10of10

Average volatility in 2015 has been significantly higher than recent years with the EURO/Greek crisis at the beginning of the year and Chinese volatility in late autumn producing a number of short term spikes. In this context, current market BBO spreads, which we saw earlier are near multi- year lows, are impressive.