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Fragmentation goes down when volatility goes up?

Looking at the FFI over the past week or so shows that when markets get highly volatile (as has been the case recently) then volumes on alternative venues like Chi-X and Turquoise seem to go down. This inverse correlation may be down to a couple of reasons. The first is that in times of market stress, traders would rather deal on venues that have an established pedigree in the market. The fact that Fortis fulfils the CCP role for Chi-X naturally must have made traders nervous about sending flow onto the Chi-X platform. The second reason may be down to the “smartness” of the SOR technology available. In times of wild swings in prices I wonder whether SOR technology is really able to keep up and so ends up taking shortcuts. It would be interesting to challenge SOR vendors (including us) to provide stats on the maximum level of price volatility they can handle before they become too slow.

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