Analysis : Equity markets in Europe : Autumn 2020

LiquidMetrix analyses consolidated performance figures for equities and ETFs traded in Europe in the previous quarter.

LiquidMetrix’s unique benchmarking methodology provides accurate measurements of trends in market movements. We have seen many changes to market microstructure over the last year, and here we present statistics as a guide on the current trends as we come to grips with the pandemic.

To give an overall indication of the market from the beginning of 2019 to the end of Q3 2020, we are comparing the Value Traded in Europe against the % Traded LIS. The trend over 2019 was a steady increase in the %LIS against the general increase in value traded to its peak in June 2019, then a slight decline in Q3 2019, and a steady increase in Q4. There was a slight, then sharp decline in %LIS in Q1 2020, but dramatic increases in volumes traded during this period, but not a corresponding increase in %LIS. In Q3 we see a steady increase in volume traded and corresponding increase in %LIS.

One criteria to assess Venue quality is the % of times the Venue has a Best Price in the market. This is a measure of how competitive the Lit markets are as it’s based upon the major index constitients of each market, and includes both price ties and unique best price.
The trend reversed from Q2 on Lit markets in Q3 with all Venues and Markets having increases in the % Best Price. This is interesting as it suggests  an increase in both competition and available liquidity.

The Market liquidity picture below shows a mirror reflection of the figures for Q2 2020. In the previous Quarter, there was a reduction in Liquidity across all markets apart from the Swedish Primary Venue, but in Q3 the reverse is the case where liquidity has returned to all markets and Venues apart from the Swedish Primary Venue. The DAX and CAC had significant increases on the Primaries, but the largest change was the reduction on the Swedish Primary.

The tables above provide a method to assess performance of Dark and Periodic Auction Pools in Europe with the Value Traded, average trade value and measure the % of times there is a corresponding movement on the Lit market.

Although the two Venue types operate differently, it now makes sense to compare figures from these two types of Venue together. The combined tables show that on most markets the majority of flow goes to either BATS Periodic or Turquoise, the one exception being DAX where UBS has an increased significance. Generally we see a consistently smaller correlation with Price moves on the Auction Pools.

In the chart above, to the left we compare the absolute impact figures on Dark Pools where we see that the Venues split into two performance curves, where the better performance on LIS Pools is very similar to that of the Periodic Auction Venues.

As has been previously noted in 2019 we had seen an increase in Trade sizes across the Non-Lit Regulated markets, but we see some dramatic changes in volumes traded in SI.
The chart below shows the trend in daily value traded in Dark Pools, Periodic Auction Venues and SI for major index constituents across Europe from Q4 2019 to Q3 2020.
The chart shows the extreme peaks in SI volume around mid year, then a return to more normal levels as we moved into Q3. There was an increase in Dark volume at the beginning of the quarter, but as we can see from the Lit liquidity figures on previous pages there has been a significant increase in Lit liquidity in Q3, but not an associated increase in Dark or Periodic Auction flow.