Analysis : European equities : Market fragmentation

FRAGMENTATION IN EUROPE.

LiquidMetrix analyses consolidated performance figures for stocks on major European indices and the changes from the previous quarter (Q1.2014).

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.

Be25_Liquidmetrix_MktShare

 

Be25_Liquidmetrix_MTF_TABLEQ2 2014 saw a slight shift in trading volumes from primary markets to MTFs and an increase in overall trading volumes.

Average MTF market share for the LiquidMetrix universe of European stocks now accounts for just under 30% of overall trading. This increase bucks a recent trend of MTF market share since its peak around summer of 2013.

As we shall see later this turnaround is mainly due to increased market shares on one particular MTF, Turquoise.

Be25_Liquidmetrix_Spreads
Be25_Liquidmetrix_Spreads_TABLEAverage bid offer spreads remained fairly constant between Q1 and Q2 2014. Within Q2 2014 there were some peaks of wider spreads associated with various bank holidays falling on different days in Europe.

Overall on-book liquidity increase fairly significantly and is now at levels similar to previous peak values at the beginning of 2013.

European market breakdown – Major European indices

Be25_Liquidmetrix_MktShare_Q2.14There were significant shifts in market shares in Q2 2014. Market share in most primary markets with the exception of Stockholm and Madrid reduced on average by 1-2%.

This wasn’t, however, a simple shift of market share of primary to MTFs, Turquoise significantly increased its market share in all markets at the expense of Chi-X and BATS. By the end of Q2 2014 Turquoise market share on FTSE-100 stocks is getting close to Chi-X’s market share.

Burgundy’s market share continues to decline.

Be25_Liquidmetrix_SprdsAtTouch_Q2.14

Market wide spreads were generally little changed between Q1 and Q2 2014.

Spreads on UK stocks narrowed somewhat whilst on French stocks spreads widened a little.

Spreads on Turquoise tightened noticeably relative to other venues. Although CHIX is still comfortably ahead of Turquoise in terms of BBO spread the gap has narrowed. BATS spreads widened somewhat overall and it is now clearly behind Turquoise in fourth position.

Be25_Liquidmetrix_SpreadsAtEUR25kAs with touch spreads, across the market as a whole there was no great change between Q1 and Q2 2014 in depth weighted spreads on primary markets.

For the MTFs the picture was a little more complex, BATS had a significant widening of depth weighted spreads on most markets.

Turquoise significantly tightened its depth weighted spreads on most markets to the extent that it is now second placed, ahead of CHIX on the SMI market and close to a tie for second place on Italian and Swedish stocks.

The touch and depth weighted spread improvement on Turquoise in Q2 2014 probably explain its relative success in improving market share.

Be25_Liquidmetrix_10bpsLIQ

Resting order book liquidity on most lit markets generally was stable or increased in Q2 2014, with the largest increases seen in the French market.

Amongst specific execution venues, Turquoise showed particularly strong performance with its resting liquidity increasing by about 10-30% in all countries.

Be25_Liquidmetrix_VolatilityInd

 

Be25_Liquidmetrix_VOLatility_TABLEThe LiquidMetrix Volatility Indicator provides a measure of high-frequency market volatility based upon 30 second price movements.

Average volatility for Q2 2014 was similar to Q1 though there seems to be a general trend to lower volatility in the most recent data (May 2014).

Market volatility levels are now near the lows of the recent two year history, significantly lower (almost half) the levels of mid 2012 at the height of the Euro crisis.

©BestExecution 2014

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