Analysis : Equity markets in Europe : Winter 2018/19

LiquidMetrix analyses consolidated performance figures for equities and ETFs traded in Europe in 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. We have seen many changes in market microstructure over the last year, and here we present statistics based upon Q4 2018 market data to provide some insights on current trends.

 

To give an overall indication of the market trends in blocks in the last quarter of 2018, we compare the value traded in Europe against the % traded LIS. Although DVC will have an impact on LIS, we can see a continuing trend and desire for block trading, but the Q4 figures indicate that there was a slight decrease in the overall % of LIS across all flow towards the end of the quarter that may indicate a lack of liquidity due to market volatility.

 

One criteria to assess Venue quality is the % of times the Venue has the Unique Best Price in the market. This is a measure of how competitive the Lit markets are, as it is based upon the major index constituents of each market.

The Lit markets have altered characteristics over the year, with Aquis now ranked third in Best Prices on all markets having replaced Turquoise and Bats over the third place ranking they had previously. The range of %Best Prices increased on most venues from the previous quarter indicating an increase in price updates across all markets , a symptom of the increased volatility.

 

The market liquidity picture corresponds with the figures seen on the Best Prices, in that increased volatility has led to less liquidity actually being made available on Lit venues.

Taking a 10 basis point measure from the mid price, we can see that liquidity dramatically reduced on the DAX, with significant decreases on CAC and SMI; the MIB and FTSE also decreased, but to a lesser extent. All MTFs had corresponding reductions in liquidity, but relative to the values previously available.

The tables below give one method of how to assess performance of Dark Pools in Europe. For trades in each major index constituent stock we review the value traded during the period, the average trade size and the relative impact on the lit market using as a measure the % of times there is a corresponding movement on the lit market.

We can observe that there are different characteristics across the various market centres and these differences will be interesting to review in Q2 2019 for the pre-/post Brexit trends

The Average Trade sizes give the clear advantage of Liquidnet and the corresponding very low correlation with Lit market movements.

For Q4 2018, we can see that on most markets Turquoise (with the Plato Blocks) traded the largest value in the period, but this was not the case on DAX and MIB.

The same methodology can also be used to assess performance of Periodic Auction Venues, as by their nature they will have behaviours similar to the Dark Pools.

Using the same measures and ranking by Value traded, the clear leader is Bats Periodic Pool, although we note there are larger average Trade sizes on other less Traded Venues.

The same picture of relative performance appears across most markets with SGMY in second ranking, apart from DAX where AQXA ranks second, but with a much smaller average Trade size.

Overall, the Periodic Venues do very well in relative impact performance on the lit market, with much lower figures (around 20%) of correlation than the Dark Pools (40 to 50%).

ISS LiquidMetrix are pioneers in the measurement of European Fragmented markets, and provide research,TCA best execution and Surveillance for financial market participants and regulators – www.liquidmetrix.com

©BestExecution 2019

 

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