Our privacy policy describes how Fidessa uses cookies on our website. If you continue using our website, you are consenting to our use of cookies. OK

The Rise of the Micro MTF – Cheaper or Smarter?

It was great to spend some time in Stockholm last week and even better to get so much positive feedback on our new improved coverage of the Nordic region.

When I got back, though, I noticed that a less well known MTF – QUOTE MTF – had announced that it had “gone live”. QUOTE MTF is backed by SwiftTrade and is representative of the new breed of micro MTFs that are seeking to challenge the business models of the “traditional” MTF community. In QUOTE MTF’s case it is offering a very aggressive maker/taker pricing model that charges just 0.14 bps for removing liquidity. Obviously, this assumes that the liquidity is actually there to be taken. There’s no point advertising that you have the lowest priced baked beans if you don’t actually have any tins on the shelves.

Other examples of micro MTFs include TOM, the joint venture between Optiver and BinckBank, and the investment in Equiduct by Citadel Securities. These initiatives do not necessarily need to make any money through trading fees. Instead, they are betting that their pricing engines will be so finely tuned that they can extract value simply by swimming upstream against order flow, i.e. through their market making activities.

In some ways this is similar to how the big boys make money internalising order flow. What makes it all a bit confusing, though, is that these entities are viewed differently by the regulators and so it’s difficult to get a clear picture of what’s really going on. It will also be interesting to see if these new initiatives can attract sufficient order flow so that they force themselves onto the best execution “radars” of the wider broker community and so attract even more flow. Either way, this type of business model looks like it will be highly effective as the intellectual and financial investment required to build pricing engines means that this is a hard area to commoditise.

One thing that is certain is that the market needs to better understand the complete trading patterns for any given stock – something that the boffins at Fidessa Labs have been working on over the summer, in fact. I hope to be able to bring you the results of their endeavours soon.

Leave a comment

Copyright © 2018 Fidessa Group Holdings Limited. All rights reserved.

The information contained within this website is provided for informational purposes only. Fidessa will use reasonable care to ensure that information is accurate at the time it is made available, and for the duration that it remains on the site. The information may be changed by Fidessa at any time without notice. We also reserve the right to close the website at any time. No representation or warranty, expressed or implied, is given on behalf of Fidessa or any of its respective directors, employees, agents, or advisers as to the accuracy or completeness of the information or opinions contained herein or its suitability for any purpose and, save in the case of fraud, all liability for direct, indirect, special, consequential or other loss or damages of whatever kind that may arise from use of the website is hereby excluded to the fullest extent permitted by law. Any decisions you make based on the information in this website are your sole responsibility and information on the website should not be relied upon in connection with any investment decision.

The copyright of this website belongs to Fidessa. All other intellectual property rights are reserved.

Fragulator® is a registered trademark of Fidessa Group Holdings Limited.

Reproduction or redistribution of this information is prohibited except with written permission from Fidessa.